Unlocking Financial Statements - Day 1
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Unlocking Financial Statements - Day 1

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Jimmy Gentry presents "Unlocking Financial Statements - Day 2," a business journalism Webinar for the Donald W. Reynolds National Center for Business Journalism. ...

Jimmy Gentry presents "Unlocking Financial Statements - Day 2," a business journalism Webinar for the Donald W. Reynolds National Center for Business Journalism.

To learn more about free training for business journalists, please visit businessjournalism.org.

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  • 1.
            • Online Seminar
            • Day 1
            • July 18, 2011
    Unlocking Financial Statements
  • 2.
    • An Online Seminar Presented By
    • The Donald W. Reynolds National Center
    • For Business Journalism
    • At Arizona State University
    Understanding Financial Statements
  • 3. Presented By
    • James K. Gentry, Ph.D.
    • Clyde M. Reed Teaching Professor
    • School of Journalism and Mass Communication
    • University of Kansas
    • [email_address]
    Understanding Financial Statements
  • 4. Schedule for Week
    • Day 1: Introduction to financial statements
    • Day 2: Income statement
    • Day 3: Balance sheet
    • Day 4: Cash flows
    • Day 5: Beyond the basics
    Understanding Financial Statements
  • 5.
    • Introduction
    • To Financial Statements
    Understanding Financial Statements
  • 6. Types of Companies
    • Public
    • Private
      • Financial statements conforming to public company statements
    • Non-profits
    Understanding Financial Statements
  • 7. Important Terms
    • Unaudited
    • Audited
    • Accountants
    • Certified Public Accountants (CPAs)
    • GAAP, FASB, AICPA, PCAOB
    Understanding Financial Statements
  • 8. Sarbanes-Oxley Act of 2002
    • Response to abuses with Enron and WorldCom as catalysts
    • New responsibilities and resources for SEC
    • Created PCAOB
    • Major emphasis on “internal controls”
    • More disclosure for public companies
    Understanding Financial Statements
  • 9. Sarbanes-Oxley Act
    • Analysts must disclose potential conflicts of interest
    • Limited types of services accounting firms can provide to public company clients
    • CEO, CFO attest to accuracy, completeness, fairness of financial statements
    • Rigorous penalties for fraud, other misdeeds
    Understanding Financial Statements
  • 10. Public Company Accounting Oversight Board
    • Created by SOX to oversee accounting
    • SEC appoints members to five-year terms
    • Five full-time members including a chairman
    • Two must be or have been CPAs
    • All members must be “financially literate”
    • Began operating May 2003
    Understanding Financial Statements
  • 11. Key SEC Documents
    • 10-K
    • 10-Q
    • 8-K
    • Proxy statement
    • Prospectus
    Understanding Financial Statements
  • 12. Annual Report (or 10-K) Strategy
    • Auditor ’s report
    • Management ’s discussion and analysis
    Understanding Financial Statements
  • 13. Annual Report (or 10-K) Strategy (cont.)
    • Financial statements and footnotes
    • Management ’s letter if annual report
    Understanding Financial Statements
  • 14. Basic Auditor ’s Report
    • Independent auditor ’s opinion on whether financial statements are presented fairly in all material respects, in accordance with GAAP:
    • We looked at these statements
    • They ’re management’s responsibility; we’re just here to express our opinion
    • We followed the rules in our audits and here ’s what an audit involves
    • In our opinion, the statements fairly present the company ’s position
    Understanding Financial Statements
  • 15. Understanding Financial Statements
  • 16. Auditor ’s Report by Category
    • Clean or Unqualified
    • Qualified
    • Disclaimer
    • Adverse
    Understanding Financial Statements
  • 17. New Auditor ’s Report
    • Combines traditional report with internal controls requirement of Sarbanes-Oxley Act
    Understanding Financial Statements
  • 18. MD&A
    • Must read it
    • Often a source of good information and insights
    • Densely written
    • SEC says it wants greater transparency
    Understanding Financial Statements
  • 19. Goal of Accounting
    • Record, classify and report financial transactions. To provide managers across the organization with information that facilitates:
      • Control of activities and expenditure
      • Refinement of operational plans
      • Accountability
      • Reporting on project outcomes
      • Writing of bids for new funds
    Understanding Financial Statements
  • 20. Goal of Finance
    • Maximize shareholder wealth as reflected in market price of the stock
    • Achieving this goal requires financial manager to focus on economic profit, not accounting profit
    Understanding Financial Statements
  • 21. Financial Decisions
    • Long-term investment decisions
      • Capital budgeting
    • Long-term financing decisions
      • Capital structure
    • Working capital management decisions
      • Net working capital
    Understanding Financial Statements
  • 22. Financial Decisions
    • Investing decisions: Types of assets firm wants to hold.
    • Financing decisions: Acquisition of funds needed to support long-term investments.
    Understanding Financial Statements
  • 23. Generally Accepted Accounting Principles
    • Guidelines based on theory and practice
    • Evolved over time
    • Procedures, concepts and standards
    Understanding Financial Statements
  • 24. GAAP: Key Points
    • Periodicity
    • Going concern
    • Economic entity
    • Monetary unit
    • Full disclosure
    Understanding Financial Statements
  • 25. GAAP: Key Points
    • Historical cost
    • Revenue realization
    • Consistency
    • Materiality
    • Industry practices
    • Conservatism
    Understanding Financial Statements
  • 26. Cash or Operating Cycle
    • Cash
    • Purchase inventory
    • Produce product
    • Sell product
    • Cash
    Understanding Financial Statements
  • 27. Cash or Operating Cycle (cont.)
    • “ Cash”
      • Cash
      • Receivables
      • Debt
    • Inventory
      • Raw materials
      • Work in progress
      • Finished goods
    Understanding Financial Statements
  • 28. Cash or Operating Cycle (cont.)
    • Sell product
      • Accounts receivable
      • Cash
    • Cash
      • Collect receivables as cash
    • Pay off payables
    • Start over
    Understanding Financial Statements