Step 1 through 5 outline the steps in performing accounting analysis. Step 4 evaluates the quality of disclosure by companies, determining if they adequately explain business strategy, accounting policies, and current performance. Step 5 identifies potential red flags in a company's accounting, such as unexplained transactions, unusual increases in inventory/receivables, and gaps between net income and cash flows.

1. STEP 1

2. STEP 2

3. STEP 3

4. Steps in Performing Accounting AnalysisStep 4: Evaluate the Quality of DisclosureDoes the company provide adequate disclosure to asses the firm’s strategy& economic consequences?

5. Do the footnotes adequately explain the key accounting policies and their logic?

6. Does the firm adequately explain its current performance?SIGMAAny disclosures to assess the firms business strategy and its economic condition? Yes ( management narrative report).

7. Any footnotes adequately explaining the key accounting policies and their logic? YesThe TSR measure has been chosen on the basis that itis the most commonly accepted method of measuring company performance and therefore well understood; andis able to measure growth in shareholder wealth.The terms of each grant have not altered.

8. PHARMAXISAny adequately explanation of its current performance? Yes2008 2007Dividend franking accountAmount of franking credits available for the subsequent year 84 627 61411The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:(a) franking credits that will arise from the payment of the current tax liability,

9. PHARMAXISAny disclosures to assess the firms business strategy and its economic condition? Yes(management’s report).

10. Any footnotes adequately explaining the key accounting policies and their logic? Not adequate Any adequately explanation of its current performance?YesCash flow and fair value interest rate riskThe Group’s main interest exposure arises from bank accepted commercial bills held.

11. Steps in Performing Accounting AnalysisStep 5: Identify Potential Red Flags-Some issues that warrant gathering more information include:Unexplained transactions that boost profitsUnusual increases in inventory or A/R in relation to salesIncreases in the gap between net income and cash flows or taxable income