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ACC305-19PLAGGERISM.docxACC305004VA016-1194-001 - INTERMEDIATE ACCOUNTING III
Week 9 Assignment 1 - Submit Here
Rachel Bright on Sun, Jun 02 2019, 2:11 PM
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Submission ID: 64fc60aa-24b7-4b42-a46e-b1ea42df7c8c
· FinancialAccounting WEEK 9 PAPER.docx
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Running head: 1 FINANCIAL ACCOUNTING 1
Financial Accounting
Rachel Bright
Professor Repp
ACC 305
Dye 6/3/19
Disclosures required on accounting policies
2 Methods and procedures that are used by the firms to prepare their financial statements are known as accounting policies. They involve method, design, procedures and even the measurement estimates that are used in the preparation no the financial statement. There some of the items and changes that needs to be explained on the prepared financial statements so that the document may be more understandable and usable by the users of the financial statements. Disclosures on the accounting policies refer to a condition where any relevant information that may affect the reliability of the financial statements is revealed and explained. 3 Disclosures provide an insight into the management style whether it is conservative or aggressive. They also help to ensure that management does not use misleading policies when preparing financial statements but rather ensure the strict consistency and adherence to generally accepted accounting principles.
Financial disclosure enhances the completeness of the financial reports by providing the much-needed information by the stakeholders of the business unit. They help prospective investors to make a decision whether to invest or not to invest in a particular business unit. 4 Examples of the commonly required disclosures are; disclosures on the accounting changes that have material effect such as changes in the inventory valuation, depreciation method or application of Generally accepted accounting principles must be disclosed; disclosure on the accounting errors which may have resulted from mathematical computations or failure to use fair market value in valuation of the assets must be disclosed; retirement of assets which leads to net loss in the income statement is explained through a disclosure; 5 all significant accounting policies adopted in the preparation of the financial statements must be disclosed and lastly, disclosure on the incomplete transactions (Hellman, Carenys, & Moya Gutierrez, 1).
Financial disclosure on accounting changes that have material effects is important to the users of the financial reports because they help them to know the reason for the sudden changes that they can see in the financial statements, disclosure on the accounting errors help the user to evaluate and determine the correct figure of the financial statement that they can use in decision making, disclosure of the retirement of asset helps the user to know the reason of the net loss that they can see in the income statement and lastly, disclosure of the incomplete transactions help the users to determine how the complete financial statement would be if the all transactions were completed and this helps them to determine if the firm would make profit or loss.
Verizon communication has notes in which it makes disclosure of a summary of the accounting policies used in preparation of its financial statement. In the annual report of 2018, Verizon Communications starts making its financial disclosures on page 55 (Verizon Communications, 2). First, Verizon Communications states that it prepares its financial statements using the U.S Generally Accepted Accounting Principles (GAAP). The company has clearly made a disclosure on the method of the estimation that it used when preparing the financial statement. Examples of the estimates that are made include; an allowance for the doubtful accounts, estimates on the recovery of the property and plants, fair market measurements that are used by the firm, non-recognized tax benefits and so many other instruments that are explained in this section. Additionally, in estimation, the firm clarifies that it is expected that the actual values may differ from the estimates that are applied. 6 Plant and property of the company are depreciation on the straight-line method basis. Moreover, firm ascertain that its derivatives are measured at the fair value and engage in derivative transactions to manage its exposure to the fluctuation of the currency. The company also makes disclosure on the employee benefit plan. All the above information is crucial because it helps the investor to make his plan on whether to invest or not to invest in this company.
Verizon Communications makes another important disclosure on the newly adopted accounting standards. It outlines the date when each standard was adopted and its corresponding effect on the financial statements. 7 The firm also discloses the accounting policies that are used by the firm in the preparation of the financial statements. For example, the revenue recognition principle, method of estimation, the method of depreciation and good will. These disclosures are of great importance because they form the primary base that is used by prospective investors to evaluate the performance of the company. They also make the financial statement of the Verizon Communication reliable because any change that is observed by the users is explained in detail and therefore promote quality decision making by investors (Roychowdhury, Shroff & Verdi, 3).
4 Importance of the management discussion and analysis section of an annual report Management Discussion and Analysis section of the annual report provides view of the performance for the publicly traded company from the management perspective. From the view of those engaged in the management of the business, they provide an overview of business in terms of past performance, its current position and also provides future strategies that are to be put in place (Cohen, Gaynor, Holder-Webb & Montague, 4).
Considering Verizon Communication management discussion and analysis section, we can identify three items that will be useful to the potential investors and these include its global presence, internal capabilities of the firm and strategy that is employed by the firm in its operations. Considering each of these items, the management has confirmed that they have commanded global presence by offering voice, data, video services and other IT solutions. This is crucial to the mind of the investor because, if the firm is able to operate beyond the boundaries, it clearly shows that the firm is expanding and with a global network, it will also command large customers which will contribute to the growth and expansion of the firm. The investor will therefore have confidence in investing in the firm because they are sure the Verizon communication is growing and expanding.
Considering the second item, the firm has internal capabilities of high performing network where it delivers on what customers want in the new digital world. From business analysis, internal capabilities provide a competitive advantage to the firm (Wang, 5). Competitive advantage makes the firm reap more in terms of the profit and if one had invested in the firm would make returns when the profits are shared amongst the shareholders. Lastly, the last item is a strategy, Verizon communications has a strong strategy that is steady and consistent and this is evident in the manner in which it makes network platform that is always ahead in the technological transformation. This is so important to the investors because they always value firm that has strategies that have demonstrated are working and they are sure that no time will they fail. The firm has the strategies that are aligned in meeting the demands of the customers and they have indeed been a source of efficiency to Verizon Communication.
Segmented information
Market segmentation refers to act of dividing customers into groups which is done by business so that they can optimize on how they deliver their products or services to particular segments. Segmentation may be based on the demographic variables (such as age, gender), geographic variables (such as nation, region, location), psychographic variables (attitudes, interests, values) and behaviors (such as purchase frequency, brand loyalty) (Lynn, 6).
8 Some of the advantages of segmented financial reporting are; it is more transparent and for the business with various areas of operation, one can be able to determine which area is profitable, helps the stakeholders to have a better sense of areas that have improved and lastly, stakeholders are able to easily uses segmented reporting to assess risk and returns to the business. On the other side, segmented reporting place too much emphasis on the present may lead to data manipulation and lastly, times it investors may be confused where they need to assess the whole data to make good decisions about the investment. Advantages of segmented reporting are weightier than disadvantages because one is able to determine areas that are making a loss and they can also be used in assigning responsibilities to deal with areas that are performing poorly (Stocken, 7).
6 Verizon Communications has two segments- Wireless and Wireline. Based on these two segments, operating income has been segmented. The company present segmented earnings before taxes, depreciation and amortization which they believe this is critically significant to the stakeholders because they are able to evaluate the profitability of each segment. Stakeholders are also to evaluate the operating performance of each segment without taking into consideration competitors’ information. The management should increase the scope of information in its segmented reporting in ensure they capture the information that facilities comparison across the industries. It is necessary of the investors are able to compare each segment across other industries and determine if indeed Verizon Communications is doing much better or worse than the other industries in each segment.
9 Various types of auditor’s reports
10 There are four types of auditor’s report which include unqualified, qualified, and adverse and disclaimer opinion. 8 An unqualified opinion is a report issued by the auditor when he or she determines that the financial records issued by the business were maintained according to GAAP and there was no gross misrepresentation. Qualified opinions refer to auditor report where the financial records are not maintained according to the GAAP but there was no any gross misrepresentation. The adverse opinion refers to auditor report where financial records were not maintained according to GAAP and also there is a gross misrepresentation. Lastly, disclaimer opinion is the auditor report is where the auditor shows that financial statement is not accurate because of some of the incomplete financial records (Henderson, 8). Auditor’s report is crucial to banks bank because they use to determine the credibility of the company in order to advance loans to the company. Through the use of the auditor’s report, banks establish if the company financial statements truly reflect the financial position of the firm and if it uses internal controls for the cash transactions.
Auditor report of the Verizon Communications is an unqualified opinion. This is because it is stated that the report was prepared according to U.S GAAP and all the financial records submitted to the auditor by the business were properly maintained according to GAAP and are free from any gross misrepresentation. The auditor’s report also that the financial statement is a fair and true representation of the financial position of Verizon Communication. Based on auditor’s report of Verizon Communication, the banks will advance loan to it because they can ascertain the credibility of the firm according to the auditor’s report.
Conclusion
In summary, preparation of the financial statements demands specific procedures, policies and rules to be followed what is generally referred to as accounting policies. Strict Adherence is critical because failure to so, will render the prepared financial statements irrelevant and if they are used in the decision in such state, they are likely to mislead because of their inaccurateness. In preparation of the financial statements, there must be provision for accounting disclosures. From the discussion, it has been evident that MD&A is provided in an annual report to give an overview of business performance from a management perspective. Also, it has been clear auditor’s report is crucial to the company and it is one of the documents that banks use to determine if they will advance loan to a business unit or not.
Source list
1. Hellman, N., Carenys, J., & Moya Gutierrez, S. (2018). 11 Introducing More IFRS Principles of Disclosure–Will the Poor Disclosers Improve? Accounting in Europe, 15(2), 242-321. https://www.tandfonline.com/doi/abs/10.1080/17449480.2018.1476772
2. Verizon Communications. (2018). 2018 Annual Report. 12https://www.verizon.com/about/sites/default/files/2018-Verizon-Annual-Report.pdf
3. Roychowdhury, S., Shroff, N., & Verdi, R. S. (2019). The effects of financial reporting and disclosure on corporate investment: A review. Available at SSRN 3364582. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3364582
4. Cohen, J. R., Gaynor, L. M., Holder-Webb, L. L., & Montague, N. (2008). Management’s discussion and analysis: Implications for audit practice and research. Current Issues in Auditing, 2(2), A26-A35. http://www.aaajournals.org/doi/abs/10.2308/ciia.2008.2.2.A26
5. Wang, H. L. (2014). Theories for competitive advantage. https://ro.uow.edu.au/buspapers/408/ 6. Lynn, M. (2011). Segmenting and targeting your market: Strategies and limitations. https://scholarship.sha.cornell.edu/articles/243/ 7. Stocken, P. C. (2013). 5 Strategic accounting disclosure. Foundations and Trends® in Accounting, 7(4), 197-291. http://www.nowpublishers.com/article/Details/ACC-027
8. 13 Henderson, K.J.(2019).What Are the 4 Types of Audit Reports? 14https://smallbusiness.chron.com/4-types-audit-reports-3794.html
