MAC 887 Midterm Exam 1 2025

Annual Report - -A report prepared by corporate management that presents financial information including financial statements, a management discussion and analysis section, notes, and an independent auditor's report. Annual Report includes - -Letter to shareholders Financial summary Results of operations Market segment Management Discussion and Analysis Auditor's report Financial statements Footnote disclosures Letters from management Management's Responsibility for the Financial Statements Management's Report on Internal Control over Financial Reporting Board of Directors How many parts of a 10-K - -4 10-K Part 1 - -Overview of the company's business and risk factors. Should disclose material legal proceedings. Should include any unresolved comments from the SEC staff about prior reports. 10-K Part 2 - -Comparative financial data. Report on financial data for the preceding 5 years. MD&A, disclosures about the risk, audited financial statements. 10-K Part 3 - -Material disclosures of company leadership. Disclosures related to directors Disclosures related to Executives (including compensation) Disclosures about Corporate governance Beneficial ownership of management and significant shareholders Relationships and Related transactions Director's independence Accountant fees and service 10-K Part 4 - -List of financial statements, schedules and exhibits that are filed in part 2. Exhibits include material contracts, organizational documents, list of significant subsidiaries, and applicable certifications. Management and director's signatures. 10-Q - -Quarterly filing that is an abbreviated form of the 10K 10-Q required timing - -within 45 days of quarter end for the first 3 quarters. MAC 887 MAC 887 How many parts of a 10-Q - -2 10-Q Part 1 - -Financial information. Unaudited F/S and Notes, MD&A, Risk Disclosures, Controls and Procedures. 10-Q Part 2 - -Legal Proceedings, Risk Factors Form 8-K - -the report used by publicly traded companies to disclose any material event not previously reported that is important to investors Events in the 8-K - -Resignation of directors or executives, bankruptcy, material disposition or impairment, appointment of new executives, auditor switches Form S-1 - -Initial registration form, used when a company goes public Form S-1 Includes: - -Planned use of funds, number of shares to be issued, details about the company's financial condition, business model, competition, offering price methodology, risk factors. Form s-4 - -Required for merger and acquisition activity. Includes important information about the company's financial and operating activities. Form 11-K - -annual report of company's employee benefit plans Proxy Statement - -contains disclosures on compensation to directors and executives Forms 3, 4, 5 - -Notices of insider ownership Schedule 13D - -Filed within 10 days when an equity acquires 5% or more of a class of securities. Form 144 - -Notice to sell Restricted stock US GAAP Reporting Requirements - -Summary of significant accounting policies, typically just what their accounting policy choices are. IFRS Reporting Requirements - -Critical Accounting Estimates and Judgments in the Footnotes. In addition to significant accounting policies footnote and lay out where their most significant estimates and judgments are. SEC Reporting Requirements - -Disclosures of critical accounting estimates is explicitly required starting in 2021 and disclosures should supplement footnote disclosures. Fraud Triangle - -pressure, opportunity, rationalization MAC 887 MAC 887 Components of Financial Reporting Quality - -Financial statement quality, Earnings Quality, Quality of the disclosures Aspects of Financial Reporting Quality - -Recognition, Measurement, Classification, Transparency Requirements that discipline capital markets - -Registration requirements Disclosure requirements Auditing requirements Responsibility statements Regulatory review Enforcement mechanisms Private contracting Real Management Issues with Financial Statements - -Determining FOB shipping point or destination Accounting Choice Issues - -LIFO/FIFO/Moving Average Accounts that involve significant estimations - -Impairment of intangibles, income taxes, LTOA, financial assets, pensions, Contingent Liabilities, Revenue recognition. Income Statement Classification Issues - -Operating income vs. non-operating income vs. Discontinued operations vs. OCI Cash Flow Statement Classification Issues - -Operating vs. Investing Financing Balance Sheet Classification - -Current vs. Noncurrent, M&A issues, Removing A/R Income Statement Quality - -Recognition, Measurement, and Earnings Quality Characteristics of High Quality Cash Flows - -Positive OCF, OCF derived from sustainable sources, OCF adequate to cover capital expenditures, OCF relatively low volatility. Current Liability Coverage Ratio - -OCF/Current Liabilities Cash Flow Coverage Ratio - -OCF/Total Debt Dividend coverage ratio - -OCF/Cash Dividends Cash Flow Margin Ratio - -OCF/Net Sales Cash Flow to Net Income - -Total Cash Flow / NI OCF to Operating Income - -OCF/Operating Income MAC 887 MAC 887 Examples of Timing Issues - -Selling (factoring) receivables, and delaying paying accounts payable. Characteristics of High Financial Quality on B/S - -Optimal leverage, adequate liquidity, economically successful asset allocation Characteristics of High Reporting Quality on B/S - -Complete, Unbiased, Clear Presentation Earnings Quality - -Earnings quality captures the degree to which reported income provides financial statement user with useful information for predicting future firm performance. Note that quality refers both to strong ear