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(Solved) Linda Chadwell ACC310 IP 4 1/28/17 Financial Statements There are several types of information on financial statements. In this paper I will discuss...


Part 1

Now that your boss has reviewed your financial statement paper, prepare a quick presentation- 3 to 4 slides of content (include a title slide and reference slide) Finalize your key assignment for submission, based on the high-level considerations discussed in your paper.

Part 2

Then, research and analyze a company that has had publicly known problems with their internal control.

  • Analyze what went wrong that caused the system of internal control to fail, and what could have been done differently to prevent the problems.
  • Make 3 recommendations or suggestions on how the company could have improved its internal control system. 

The deliverable for this section is a paper of 600-900 words. This does not include the title or references. All references must be properly cited in APA format. 

Linda Chadwell
ACC310
IP 4
1/28/17 Financial Statements There are several types of information on financial statements. In this paper I will
discuss the kinds of information that can be found on a financial statement. I will also discuss
how the users of these statements can use the information to help them make better informed
decisions, and how to determine if there has been any fraudulent or illegal activity. According to the definition of The Financial Accounting Standards Board the following
are parts of the financial statement.
Assets are future economic benefits which have been obtained or controlled by a business
entity as the result of a past transaction.
Comprehensive income is a change in equity, or net assets of a business during a period
from trades and other dealings from non- owner sources. It includes all changes in equity during
a period except the ones occurring as a result of investments by owners and distributions to
owners.
Distributions to owners are reductions in net assets of a business as a result of shifting
assets, providing services, or acquiring liabilities to owners. Distributions to owners decrease
ownership interest or equity in a business.
Equity is the remaining interest in the assets of an entity that remains after subtracting its
liabilities. In a business entity, equity is the ownership interest.
Expenses are expenditures or other uses of assets or incurring of liabilities during a
period from transporting or manufacturing goods or providing services, or carrying out other
events that constitute the entity's continuing main or essential process. Gains are rises in equity (net assets) from peripheral or incidental dealings of an entity
and from all other dealings and other actions and situations affecting the business during a period
except the ones that are a result of revenues or investments by the owner.
Investments by owners are raises in net assets of a specific enterprise that is the result of
transfers to it from other entities of something of value to acquire or escalate ownership interest
(or equity) in it.
Liabilities are likely upcoming expenses of economic benefits arising from current
responsibilities of a specific entity to transfer assets or deliver services to other entities in the
future as a result of past transactions or dealings.
Losses are reductions in equity (net assets) from peripheral or incidental dealings of an
entity and from all other transactions and other actions and situations that affect the entity during
a period except the ones that result from expenses or dispersals to owners.
Revenues are inflows or other improvements of assets of an entity or payment of its
liabilities (or a combination of both) during a period from transporting or manufacturing goods,
providing services, or other events that establish the entity's ongoing major or essential
operations (.inc.com). There are several types of users that use the information contained in a financial
statement. There are both internal users, and external users. The information contained in a
financial statement can be used to make better financial decisions. Internal users are the primary
users of the accounting information. Internal users include Management, employees, and
owners. Management uses the information to analyze the company’s performance and position,
as well as taking correct measures to advance the company’s results.
Employees use the information to evaluate the company’s success and its consequence on
their future compensation and job security.
Owners use the information to analyze the practicality and cost-effectiveness of their
investment and to determine any future course of action (accounting-simplified).
External users are also known as secondary users of accounting information. The
external users of financial statements include creditors, Tax authorities, Investors, Customers,
and Regulatory Authorities. Creditors use the information to determine whether the organization
is worthy of credit. Creditors set the terms of credit based on an assessment of the customer’s
financial health. Suppliers and lenders such as banks are known as creditors. Tax Authorities use the information to find the reliability of the tax returns filed on behalf
of the company.
Investors use the information to analyze the possibility of investing in the company.
Investors need to ensure that they can make a good return on their investment before they
obligate themselves as a financial resource to the company.
Customers use the information contained in the financial statement to evaluate the
financial situation of its suppliers which is essential for them to continue a stable source of
supply in the future.
Regulatory Authorities use the information to ensure that the company's disclosure of
accounting information is in agreement with the rules and regulations set to protect the interests
of the stakeholders who rely on this data to form their decisions. (accounting-simplified) There are ways that you can determine if any fraudulent or illegal activity has taken
place. Some of the things we would look for are Revenue manipulation, Misrepresented
expenses, cookie jar accounting, along with some other red flags.
There are several ways that revenue can be manipulated. Some of the more common
ways are to record revenue before it is earned, or to make up revenue that does not exist. This
can be done by making fraudulent sales to complicit associated parties, such as selling to a sister
company with plans to cancel the sale. They can also enter the full value of an installment sale,
stating a consignment sale as a completed sale, or altering contracts to boost sales. They can also
wait to record customer returns in a later period, or ignore them completely. To determine
fraudulent or illegal activity you should look at the income statements for prior periods, which
should include the last quarter and the last year so you can see if there is any unexplained or
sudden changes in the company’s revenues that are not accounted for in its cash flows.
Companies can also misrepresent expenses by manipulating inventory. One way this can
be done is by buying supplies and not recording the whole expense of the purchase or not records
the transaction at all. To detect fraudulent activity in this case, we can examine the company’s
expenses. If the expenses show a change which in inconsistent with prior periods we should
check into the variance. The balance sheet and footnotes can provide more information.
( Investopedia) In conclusion, it is important to understand the information found on financial statements,
and how that information is used. It is also important to understand how to detect fraud and
illegal activities associated with the financial statement. References:
http://accounting-simplified.com/financial/users-of-accounting-information.html
http://www.inc.com/encyclopedia/financial-statements.html
http://www.investopedia.com/articles/investing/053115/look-these-red-flags-incomestatement.asp
M.U.S.E. Financial Statements (2013).Retrieved 01/28/2017 from
https://class.ctuonline.edu/_layouts/MUSEViewer/Asset.aspx?MID=6633743&aid=6633761

 


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