Understanding Financial Statements-3

Understanding Financial Statements-3 - Complexities (cont.)...

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Unformatted text preview: Complexities (cont.) GAAP provide some measure of uniformity but they allow considerable discretion Accounting choices and estimates affect amounts on financial statements Depreciation of fixed assets is a good example (choice of method, different good faith estimates possible for asset life and salvage value) 1-1 Mythical Mountain 1-2 More Complications Goodwill and Other Intangible Assets Consolidation of parent and subsidiaries Accounting for leases and pensions Translation of foreign operations Off-balance sheet financing Accounting for derivatives Two sets of books (yes, its legal!!) - financial vs. tax reporting Quality of Financial Reporting Management has considerable discretion within GAAP Potential exists to manipulate the profit/loss reported 1-3 Quality of Financial Reporting (cont.) Reflect an accurate picture of a companys financial condition and performance Information should be useful both to assess the past and predict the future 1-4 Ideally, financial statements should: 1-5...
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Understanding Financial Statements-3 - Complexities (cont.)...

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