Chapter 5 & 13
Financial Reporting: Analysis, Measuring, and Evaluating
 Different users of financial information (see Exhibit 5.1, page 208)
o Managers, Directors, Creditors, Investors, and Government
 Fraud in accounting: 3 characteristics that promote fraud
o Opportunity, Incentive, and Personality
 Sarbanes-Oxley Act (SOX) – A set of regulations passed by Congress in 2002 in an
attempt to improve financial reporting and restore investor confidence.
 Single-Step vs. Multi-Step Income statement (Exhibit 5.7, page 215)
o The multi-step income statement separates expenses into multiple categories
 Cost of goods Sold
 Operating Expenses
 Other Gains and Losses (i.e., Non-operating)
 Income Tax Expense
o Exhibit 6.11 on page 275 is another example of a multi-step statement
 A Statement of Stockholders’ Equity (page 216) is similar to a Statement of Retained
Earnings, except it shows the changes in all stockholders’ equity accounts.
 All publicly traded companies must be audited by external auditors to insure that the
financial statements and other information are free of material misstatements that
could mislead investors.
o An unqualified opinion is given when everything is fairly stated in accordance
with GAAP.
o An opinion of qualified, adverse, or disclaimer is given when issues arise
during the audit (i.e., not in compliance with GAAP or GAAS).
 Timing of Significant Financial Reporting Events (Exhibit 5.5, page 214)
 Publicly traded companies must issue quarterly reports (10-Q’s) as well as annual
reports (10-K’s).
 GAAP vs. IFRS (Exhibit 5.11 and 5.12 on pages 221-222)
o Make sure you know some of the differences in financial statement titles and
how the accounts are shown on the balance sheet under both methods.
 In class, we spent some time going through all the ratios in the Chapter 13 Power
Point. In this class, make sure you:
o Round all ratio answers to two decimal places.
o Know whether the ratio should be higher or lower, in general
o Know the proper terms to put it in (#, %, times, days, etc.)