Presentation on theme: "Instructor: Thomas Christopher Martin 2 nd Year Phd Student"— Presentation transcript:
Instructor: Thomas Christopher Martin 2 nd Year Phd Student
A little about myself… 1-2 Commerce Degree Memorial University of Newfoundland MBA MUN / Université Catholique de Lyon Ernst & Young /13 - Montreal & St. John’s (Canada) Phd International Business – 2013 – Trinity College Dublin (Ireland) Emerging Markets Global analysis of firm level multinationality
This week its Accounting and Beyond 1-3 Session 1 Session 2 Tuesday Financial Statements/Expenses/Revenues Accounting Cycle & Accounts Wednesday The Balance Sheet The Income Statement Thursday The Cash Flow Statement Tools & Techniques Friday Tax Havens Exam
Grading Scheme 1-4 Exam at the end of the week (70%) Will cover material from Tuesday, Wednesday, Thursday, & Friday Multiple Choice Questions Participation throughout the four days of lecturing (10%) Open conversation about topics will be encouraged along with attendance of all sessions Tax Haven Coverage by each assigned group (20%) Work in groups during the 4 days to present findings on Tax Haven
Grading Scheme 5 Group Work Friday 1 or 2 members of the group will present with or without the help of Powerpoint (7-10 minutes) Choose a Tax Haven and explain what makes that country/region a haven for Multinationals What large Multinationals have subsidiaries here? Is this good or bad for the local economy? What is your view on this country/region being a tax haven? Submit a one page document summarizing your findings
Map or Maze 1-9 A map helps its user reach a desired destination through clarity of representation. A maze attempts to confuse its user by purposefully introducing conflicting elements and complexities that prevent reaching the desired goal. Financial statements have the potential for being both map and maze.
Financial Statements as a Map 1-10 Form the basis for understanding the financial position of a firm Allow users to assess historical and prospective financial performance Present clear representations of a firm’s financial health
Financial Statements as a Maze 1-11 Overwhelming amount of information Unreliable auditing Constantly changing and complex policies and reporting requirements Considerable discretion given to management Key information hidden or omitted
Map or Maze 1-12 The main objectives are: ensure that financial statements serve as a map, not a maze, demonstrate how to read and evaluate financial statements, provide the tools and techniques needed to complete a comprehensive financial statement analysis, and encourage intelligent decision making.
Map or Maze 1-13 Usefulness of Information Financial position Success of operations Policies and strategies of management Insight into future performance
Map or Maze 1-14 Volume of Information Financial statements Notes to the financial statements Auditor’s report Five-year summary of key financial data High and low stock prices Management’s discussion and analysis of operations Other material
Map or Maze 1-15 Volume of Information Generally accepted accounting principles (GAAP) Securities and Exchange Commission (SEC) Financial Accounting Standards Board (FASB) International Accounting Standards Board (IASB) Issues Statements of Financial Accounting Standards (SFASs)
Map or Maze 1-16 Where to Find a Company’s Financial Statements Annual report Financial statements Public relations material Sent to shareholders and prospective investors Corporate website
Map or Maze 1-17 The Financial Statements Balance sheet (or statement of financial position) Income statement (or earnings statement) Statement of stockholders’ equity Statement of cash flows
Map or Maze 1-18 Notes to the Financial Statements Integral part of the statements Summary of the firm’s accounting policies Details about particular accounts Other supplementary information
Map or Maze 1-19 Auditor’s Report Attests to the fairness of the presentation of financial statements Sarbanes-Oxley (SOX) Act of 2002
Map or Maze 1-20 Auditor’s Report Types of reports Unqualified reports (FS give a true and fair view) Qualified reports (FS are misstated, no affect) Adverse opinion (FS are misstated, not conforming with GAAP) Disclaimer of opinion (Opinion cannot be formed on FS) Unqualified opinion with explanatory language
Map or Maze 1-21 Financial Reporting Reforms SOX Title I – Public Company Accounting Oversight Board (PCAOB) SOX Title II – prohibits non-audit services during an external audit SOX Titles III and IV – corporate responsibility SOX Title IX – harsh penalties for violations
Map or Maze 1-22 Proxy Statement Used to solicit shareholder votes Important in assessing who manages the firm how management is paid conflict of interest issues
Map or Maze 1-23 Missing and Hard-to-Find Information Employee relations with management Morale and efficiency of employees Reputation of the firm Firm’s prestige in the community Effectiveness of management
Map or Maze 1-24 Continued Provisions for management succession Potential exposure to regulation changes Publicity in the media Companies operating in several lines of unrelated business
Quality of Financial Reporting 1-25 Many opportunities for management to affect quality Timing of revenue and expense recognition Discretionary items
Revenues 26 Assets earned by a company’s operations and business activities Revenue account is an equity account with credit balance Typically seen as… Operating Revenues Non-Operating Revenues
Revenues 28 Aaron’s Body Shop repairs cars for local auto dealers. Aaron is currently working on a fender repair for Bill’s Auto Lot. After Aaron finishes the repair, he sends Bill a $1,000 invoice for the labor and records the sale in his accounting system by debiting accounts receivable and crediting revenues. Aaron records the income because he performed the work and has earned the revenue even though Bill hasn’t actually paid Aaron yet.
Expenses 29 Costs incurred to generate revenue Expense accounts decrease the overall equity balance There are many examples of expenses that can occur for a business, all fit into 2 categories Operating Expenses Non-Operating Expenses
Expenses 31 Corey’s Food Truck, Inc. is a local food company that delivers sandwiches. Corey places new deli orders for $100 every Monday to a local butcher. When Corey places his order, he debits supplies for $100 and credits cash for $100. This journal entry records the asset, cash, being used up to generate revenues by making sandwiches. At the end of the year how much does Corey spend on deli meat? This will be listed as an expense on his income statement.