Phillips Chap 5 class slides

Phillips Chap 5 class slides - Phillips et al Chapter 5...

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Phillips et al Chapter 5 Understanding Financial Statements and the Financial Reporting Environment
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1. Obtain Financing from lenders and investors, which is used to invest in assets, 2. Invest in Assets, which are used to generate revenues, 3. Generate Revenues , which produce net income, 4. Produce Net Income , which is needed to satisfy lenders and investors. Four Parts to a Business
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Business managers at all levels use accounting information to make business decisions. Management Function Governance Roles Accounting information used by directors to oversee Management of the business. Board of directors ensures that managers make decisions that benefit stockholders.
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Creditors use acct info evaluate risk and decide the terms of contracts. Loan covenants are terms of a loan agreement which, if broken, entitle the lender to demand immediate repayment or renegotiation of the loan. Contracting Roles
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Accounting information is used to assess stock price. Investors look to accounting information to help evaluate the financial strength of a business. Valuation Roles
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The Fraud Triangle Opportunity (How?) Incentive (Why?) Character (Who?)
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Internal Controls methods that a company uses to: protect against theft of assets enhance the reliability of acct information promote efficient/effective operations ensure compliance with laws/regulations. Most fraudsters have a sense of personal entitlement, which outweighs moral principles, such as fairness, honesty, and concern for others.
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The Sarbanes-Oxley Act of 2002 Counteract Incentives Reduce Opportunities Encourage Good Character
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are experts in financial reporting, who issue reports on financial statements prepared using GAAP. Unqualified Audit Reports indicate that F/S are in accordance with GAAP. They are useful and readers can trust what is reported. Auditors
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This note was uploaded on 04/30/2011 for the course MBA 819 taught by Professor Mcmillan during the Fall '10 term at Clemson.

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Phillips Chap 5 class slides - Phillips et al Chapter 5...

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