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Communicating Chapter and Interpreting Accounting Information
Guiding Principles for Communicating Useful Information
Primary Objective of External Financial Reporting To provide economic information to external users for decision making.
Primary Qualitative Characteristics Primary Relevance: Timely and Predictive Feedback Value Reliability: Accurate, Unbiased, and Verifiable Secondary Qualitative Characteristics Comparability: Across businesses Comparability: Consistency: Over time Consistency:
Useful Information for Decision Making
Information presented in financial reports is useful if it makes a difference in the context of making a decision.
Relevance Information disclosed in financial statements is relevant if it can influence users decision by helping them assess the impact of past activities and/or predict future events. Reliability Information presented in financial statements is reliable when it is verifiable, unbiased, and accurate. Verifiability, neutrality, and representational faithfulness characterize the reliability of accounting information.
Useful Information for Decision Making
Information presented in financial reports is useful if it makes a difference in the context of making a decision.
Comparability enables users to identify similarities and discrepancies between two sets of financial reports produced by two different companies Consistency enhances comparability by using the same accounting methods over time
Hide and Seek, Canadian Business
Discussion of the red flags investors should look for.
Ensuring the Integrity of Financial Information Communication Process
Regulators Standard Setting and Verification Auditing Standards (AASB), Auditing Accounting Standards (AcSB), Corporate Governance Standards (Stock Exchanges) (Stock Management Primary Responsibility CFO, CEO, Accounting Staff Auditors Verification Partners, Managers, Staff Directors Oversight Audit Committee Audit (Independent directors) (Independent
Players in the Accounting Communication rocess Click to editPMaster title style
Management Preparation CFO, CEO, Accounting Staff Guided by GAAP/IFRS
An unqualified opinion states that the financial statements are fair presentations in all material respects in conformity with GAAP.
Independent Auditors Verification Partners, Managers, Staff Guided by GAAS Government Regulators Verification Provincial securities staff Guided by securities regulations Users Analysis and Decision Investors, Lenders, companies etc.
Public only
Information Intermediaries Analysis and Advice Financial analysis, Information services
The Disclosure Process
Press Releases are used to announce Press quarterly and annual earnings as soon as the verified figures are available. the
Earnings Press Release Excerpt for Forzani Group Ltd CNNMatthews, September 1, 2006 CALGARY, Alberta -- Sept. 1, 2006 The Forzani Group Limited (TSX:FGL) today reported fiscal 2007 second quarter results for the 13 weeks ended July 30, 2006, announcing net earnings of $1.9 million compared with $2.3 million for the prior years second quarter. The net earnings were $0.07 before a $0.01 per share, nonrecurring, non-cash charge to the Companys future income tax expense . . . .
Informative or Misleading, CA Magazine
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Earnings Press Release Excerpt for Forzani Group Ltd CNNMatthews, September 1, 2006 CALGARY, Alberta -- Sept. 1, 2006 The Forzani Group Limited (TSX:FGL) today reported fiscal 2007 second quarter results for the 13 weeks ended July 30, 2006, announcing net earnings of $1.9 million compared with $2.3 million for the prior years second quarter. The net earnings were $0.07 before a $0.01 per share, nonrecurring, non-cash charge to the Companys future income tax expense, up from a year-earlier loss of 7 cents. Revenue for the three months ended July 30 was $284million, up from a year-earlier $243.6-million. The groups overall same-store sales increased 6 percent, year over, year. FGL (TSX) fell 99 cents to $15.84.
Why would the price per share decrease even though the company announced an increase in EPS?
Annual Reports
For public companies, annual reports public companies annual are elaborate due to OSC/SEC reporting requirements: reporting
1. A Nonfinancial Section
A lletter to the shareholders, a description of etter managements philosophy, products, successes, etc. successes,
2. A Financial Section
See next slide for a detailed listing . . . See
Annual Reports - Financial The Financial Section of a Section public companys annual report includes:
1. Summarized financial data for 5- or 10-years. 2. Management Discussion and Analysis (MD&A). 3. The four basic financial statements. 4. Notes (footnotes). 5. Independent Accountants Report and the Report of Management Responsibility.
1. Recent stock price information. 2. Summaries of the unaudited quarterly financial data. 3. Lists of directors and officers of the company and relevant addresses.
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