accounting test _2 review[1]

accounting test _2 review[1] - Accounting Review Test #2...

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Accounting Review Test #2 Chapter 5 : Communicating and Interpreting Accounting Information Corporate Governance – procedures designed to ensure that the company is managed in the interests of the shareholders. In an attempt to restore investor confidence, Congress passed the Public Accounting Reform and Investor Protection Act (Sarbanes-Oxley Act) – strengthens financial reporting and corporate governance for public companies. Players in the Accounting Communication Process o Regulators (SEC, FASB, PCAOB, Stock Exchange) o Managers (CEO, CFO, and Accounting Staff) o Board of directors (Audit Committee) – elected by the stockholders to represent their interests, is responsible for maintaining the integrity of the company’s financial reports. Must be composed of non-management (independent) directors with financial knowledge Responsible for hiring the company’s independent auditors o Unqualified (clean) Audit Opinion – an auditor’s statement that the financial statements are fair representations in all material respects in conformity with GAAP. Opinion adds credibility Subjecting the company’s statements to independent verification reduces risk that company’s financial condition is misrepresented in statements result, rational investors and lenders should lower rate of return (interest) they charge for providing capital. o Information Intermediaries: Financial Analysts and Information Services Analysts’ results are combined into their reports Earnings forecasts – predictions of earnings for future accounting periods. o Users: Institutional and Private Investors, Creditors, and Others Institutional Investors – managers of pension, mutual, endowment, and other funds that invest on the behalf of others; employ their own analysts who also rely on the information intermediaries Private Investors – include individuals who purchase shares in companies; rely on advice of intermediaries or turn their money over to the management of mutual and pension funds Lenders (Creditors) – include supplies and financial institutions that lend money to companies; use same public sources of information Cost-Benefit Constraint – suggests that the benefits of accounting for and reporting information should outweigh the costs. o Guiding Principles for Communicating Useful Information
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Relevant information – can influence a decision; it is timely and has predictive and/or feedback value. Reliable information – accurate, unbiased, and verifiable Consistent information – can be compared over time because similar accounting methods have been applied. Comparable information – allows comparisons across businesses because similar accounting methods have been applied. Material Amounts
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accounting test _2 review[1] - Accounting Review Test #2...

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