Bài giảng môn Kế toán, kiểm toán - Chapter 10: Corporate governance, notes to the financial statements, and other disclosures

© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.Chapter 10Corporate Governance, Notes to the Financial Statements, and Other DisclosuresPowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPALearning ObjectivesAfter studying this chapter you should understand and be able to:Discuss the significance of corporate governance.Identify the types of financial reporting misstatements that have occurred in recent years.Explain why the notes are an integral part of the financial statements.Discuss the kinds of significant accounting policies that are explained in the notes.Describe the nature and content of various note disclosures. Explain the role of the Securities and Exchange Commission and some of its reporting requirements.Explain why a statement of management’s responsibility is included with the notes.Describe the significance of management’s discussion and analysis of the firm’s financial condition and results of operations.Identify what is included in the five-year (or longer) summary of financial information.Discuss the meaning and content of the independent auditors’ report.10-3Corporate GovernanceBusiness ethicsSocial responsibilityEquitable treatment of shareholdersDisclosures and transparency Board of directors’ responsibilityL O 110-4Corporate GovernanceL O 1The most powerful legislation to date has been the Sarbanes–Oxley Act (SOX) of 2002, which created the Public Company Accounting Oversight Board (PCAOB) as the authoritative watchdog over the accounting and auditing profession.The SOX legislation was aimed primarily to curtail the misbehavior of senior management of corporateentities: Chief executive officers (CEOs) and chief financial officers (CFOs) are required under SOX to attest (in front of a notary) to the correctness of their company’s financial statements.The registrant must also report in a separate section of its annual10-K report any “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” as an added measure of transparency and management accountability.10-5Corporate GovernanceL O 1In response to the financial crisis of 2007–2008, Congress passed the Wall Street Reform and Consumer Protection Act of 2010 (referred to as the Dodd-Frank Act ). Although most of the act deals with financial regulation, several Dodd-Frank provisions impose new corporate governance rules not just on Wall Street banks but also on MainStreet public corporations.Dodd-Frank Act contains the “say on pay” mandate requiring periodicshareholder advisory votes on executive compensation and golden parachute provisions.Dodd-Frank provision requires companies to disclose the reasons that they have chosen to have either the same person or separate people serve as the CEO and chairman of the board.10-6Recent Financial MisstatementsL O 210-7Recent Financial MisstatementsL O 210-8 Because of the complexities related to financial reporting and because of the number of alternative generally accepted accounting principles that can be used, explanatory notes are included as an integral part of the financial statements.L O 3Notes to the Financial Statements10-9Summary of Significant Accounting PoliciesTypical accounting policies that are disclosed in the notes to the financial statements include:Depreciation method used.Inventory valuation method used.Basis of consolidation of subsidiaries.Reconciliation of taxes paid to tax expense.The cost of employee benefit plans.Treatment of goodwill and intangible assets.Earnings per share information.Stock option and stock purchase plans.L O 4Notes to the Financial Statements10-10Other DisclosuresAccounting changes.Business combinations.Contingencies and commitments.Events subsequent to the balance sheet date.Impact of inflation.Segment information.L O 410-11Depreciation MethodDisclosure of the depreciation method permits informed readers to make comparisons of companies in the same industry.ImpactofIncomeSum-of-the-Years’-Digits MethodUnits-of-ProductionMethodStraight-LineMethodDeclining BalanceMethodL O 410-12Inventory ValuationThe selection of an inventory valuation method influences the reported income and the inventory amount shown on the balance sheet.Impact on Income Statementand Balance SheetLIFOFIFOWeighted-AverageL O 410-13Basis of ConsolidationThe basis of consolidation disclosure requires that consolidated financial statements include data from substantially all subsidiary companies.ParentCompany$$Subsidiary Company 1$$Subsidiary Company 2$$Subsidiary Company 3$$L O 410-14Income TaxesA reconciliation of the statutory income tax rate with the effective tax rate.The Internal Revenue Code is the set of rules for preparing tax returns.financial statement income tax expense.IRS income taxes payable.GAAP is the set of rules for preparing financial statements.Usually. . . Results in . . .Results in . . .L O 410-15Employee BenefitsThe cost of employee pension plans included as an expense in the income statement is disclosed.Present value of benefits at present pay levels.Present value of nonvested benefits at present pay levels.Present value of additional benefits related to projected pay increases.Accumulated Benefit ObligationProjected Benefit ObligationVested Benefit ObligationL O 410-16Intangibles Including GoodwillWhen the balance sheet contains intangible assets, including goodwill arising from business acquisitions, the method of recognizing initial cost will be described. Any amortization or impairment in value of the intangibles must be shown.©CopyrightPatent®Trademark™L O 410-17An explanation of the calculation of EPS may include the details of the computation of weighted-average number of common shares outstanding and the adjustments made to net income for preferred stock, stock options, and convertible securities.Earnings Per ShareL O 410-18Segment InformationMost large corporations operate in several lines of business and operate in many geographical areas.Segment information should include:Sales to unaffiliated customers,Operating profit,Capital expenditures,Depreciation expense,Identifiable assets.L O 510-19Reporting to the SECInstead of an annual report, companies that are registered with the SEC file an annual Form 10-K. The Form 10-K includes most of the information in the company’s annual report and must also comply with additional SEC reporting requirements.L O 610-20Management’s Statement of ResponsibilityThe company’s management bears ultimate responsibility for the financial statements and notes, not the auditors who express an opinion on the fairness of the presentation of the financial statements.L O 710-21End of Chapter 1010-22