Mmiiii business activities appoints reports to board

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mmIIII. BU,siness Activities appoints reports to Board of directors: • Sets policy • Hires executive managers • Appomts committees such as - Strategic - Compensation -Audit oversees Executive managers company pays audit fees The audit committee must consist solely of outside directors, and cannot include the CEO. As part of its oversight the financial accounting system, the audit committee focuses on internal controls, which are the policies and nrocedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. egulatory and Legal Environment The regulatory and legal environment provides further assurance that financial statements are complete and urate. SEC Enforcement Actions Companies whose securities are issued to the public must file reports with the SEC (see ). One of ese reports is the lO-K, which includes the annual financial statements (quarterly statements are filed on report 10-Q). The 10-K report provides more information than the company's glossy annual report, which is partly a marketing document (although the basic financial statements are identical). We prefer to use the lO-K because of - additional information. The SEC critically reviews all of the financial reports that companies submit. If irregularities are found, the EC has the authority to bring enforcement actions against companies that it feels are misrepresenting their finan- cial condition (remember the phrase in the audit opinion that requires companies to "present fairly, in all material respects, the financial position of ... "). One such action was brought against Dell, Inc. and its executives in 2011. Following are excerpts from the SEC's complaint:
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1-31 Module1 I Framework for Analysis and Valuation The Securities and Exchange Commission today charged Dell Inc. with failing to disclose material information to investors and using fraudulent accounting to make it falsely appear that the company was consistently meeting Wall Street earnings targets and reducing its operating expenses. The SEC alleges that Dell did not disclose to investors large exclusivity payments the company received from Intel Corporation not to use central processing units (CPUs) manufactured by Intel's main rival. It was these payments rather than the company's management and operations that allowed Dell to meet its earnings targets. After Intel cut these payments, Dell again misled investors by not disclosing the true reason behind the company's decreased profitability ... The SEC's complaint, filed in federal district court in Washington, D.C., alleges that Dell Inc., Michael Dell, Rollins, and Schneider misrepresented the basis for the company's ability to consistently meet or exceed consensus analyst EPS estimates from fiscal year 2002 through fiscal year 2006. Without the Intel payments, Dell would have missed the EPS consensus in every quarter during this period ...
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