Chapter 17 - Solution Manual

C such quarterly statements do give management

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c. Such quarterly statements do give management opportunities to manipulate the results of operations for quarter--for instance, through the timing of expenses. Management can defer some expenses in an attempt to make the results of earlier quarters look very profitable, thus delaying discovery of conditions which could reflect on management's performance. On the other hand, management can incur heavy expenses in the earlier quarters in an attempt to show a favorable trend in the later quarters. For example, the time at which maintenance work is undertaken is somewhat discretionary. Case 17-6 a. A variety of disclosure techniques are available in published financial statements. Among the most common are: 1. The financial statements. 2. Footnotes to the financial statements. 3. Supplementary statements and schedules. 4. The auditor's report. The financial statements should contain the most relevant and significant information about the corporation expressed in quantitative terms. The form and arrangement of the financial statements should be such as to insure that the most vital information is readily apparent to the financial-statement users. The footnotes should be used to present information that cannot be easily incorporated into the financial statements themselves. However, footnotes should never be used to substitute for the proper valuation of a financial-statement element nor should they be used to contradict information contained in the financial statements. The most common examples of footnotes are: 1. Schedules and exhibits such as long-term debt. 2. Explanations of financial statements such as pensions. 3. General information about the company such as subsequent events or contingencies. Supplementary statements and schedules are intended to improve the understandability of the financial statements. They may be used to highlight trends such as five-year summaries or be required by FASB pronouncements such as information on current costs. The auditor's report is a form of disclosure in that it informs the users of the reliability of the financial statements. That is, an unqualified opinion should indicate more reliable financial statements than would a qualified or adverse opinion. Unknown Deleted:
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365 b.i. The disclosure issues addressed by the AICPA's Code of Professional Ethics are: adequate auditing procedures, the use of acceptable accounting principles and independence. ii. The disclosure issue addressed by the Securities Act of 1933 is the protection of the public from fraud when a company is initially issuing securities to the public. iii. The disclosure issues addressed by the Securities Exchange Act of 1934 are the personal duties of corporate officers and owners (insiders) and the corporate reporting requirements. iv. The disclosure issues addressed by the Foreign Corrupt Practices Act of 1977 are the prevention of bribery of foreign officials and the maintenance of adequate financial records.
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