POSSIBLE QUIZ I QUESTIONS CHS 2 AND 6
1. What are the statutory equivalents to the annual report?
Is the form 10-k, which public companies must file with the SEC. 10-k usually contains relevant information beyond that in the annual report, it is good practice to regularly procure a copy of it.
2. What are three other statutory reports a company must file with the SEC?
Some of the more important reports are the proxy statement which must be send along with the notice of the annual shareholders meeting; from 8-k which must be field to report unusual circumstances such as an auditor change; and the prospectus which must accompany an application for an equity offering.
3. How do companies release key summary information to the public?
Companies almost always release key summary information to the public earlier through an earnings announcement. An earnings announcement is made available to traders on the stock exchange through the board tape and is often reported in the financial press such as The Wall Street Journal. Earnings announcements provide key summary information about company position and performance for both quarterly and annual periods.
4. The chapter points out some basic differences between GAAP and IFRS. What are they?
Some Examples of Differences Between IFRS and U.S. GAAP
Consolidation — IFRS favors a control model whereas GAAP prefers a risks-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown separately under IFRS.
Statement of Income — Under IFRS, extraordinary items are not segregated in the income statement. With GAAP, they are shown below the net income.
Inventory — Under IFRS, LIFO cannot be used, but GAAP, companies have the choice between LIFO and FIFO.
Earning-per-Share — Under IFRS, the earning-per-share calculation does not average the individual interim period calculations, whereas under GAAP the computation averages the individual interim period incremental shares.
Development costs — These costs can be capitalized under IFRS if certain criteria are met, while it is considered as "expenses" under U.S. GAAP.
5. What is Corporate Governance?
The system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company - these include its shareholders, management, customers, suppliers, financiers, government and the community.
6. What are the desirable qualities of accounting information, and briefly describe?
Relevance in accounting information is necessary for predictive and feedback value.
Timeliness is a quality subset of relevance. If you do not present accounting information in a timely manner, its usefulness to investors and managers is diminished or completely eliminated.
If accounting information is not reliable, it cannot be used to make quality business decisions.
In order for accounting information to be useful in decision making, it must be recorded consistently, meaning the same accounting treatment must be applied at all times to a given type of accounting data.
Comparability is a subset of consistency. If you cannot compare accounting information for one period of time to another, then you cannot derive useful information in order to make operational decisions.
7. Financial statements are primarily prepared on what basis?
8. What is the basis of accrual accounting?
9. For accrual accounting what is X:
Net Income = Accruals + X
10. Briefly describe Economic Income, Permanent Income and Operating Income.
11. What is Revenue Recognition and Matching?
12. What is Unearned Revenue?
13. What are Deferred Charges?
14. Describe Fair Value Accounting.
15. Fair Value accounting is applicable primarily to assets and liabilities that can be broadly termed as what?
16. What is earnings management and what are three typical strategies used in