DISCLOUSERS REQUIREMENTS OF ACCOUNTING POLICY.

DISCLOUSERSREQUIREMENTS OF ACCOUNTING POLICY.

Basically there are mainly two internationally appreciated accounting principles issuing bodies, they issue accounting principles in thename of:

IAS(international accounting standards and international financialreporting standards) and

USGAAP (generally accepted accounting standards). In America GAAP isthe statutory requirement for the listed corporations.

GAAPrequires the following discloses on the face of the statement:

  1. Financial positions-assets value of the corporation

Thisstatement gives the true and fair monetary value of thegroup/corporation as at the preparation date.

Includesthe following: non-current assets, current assets, currentliabilities, long term liabilities and equity/capital

NonCurrents assents are recognised and measured either using equitymethod or cost methods as GAAP provides. For instance Verizoncommunications’ is a group and has wholly and partiallysubsidiaries. Wholly owned subsidiaries accounts are recognised andmeasured using equity method and those otherwise are recognised andmeasured at cost then and the converted to equity in the consolidatedstatements of the group.(Verizon communications Inc. Annual notes(2012) pg. 21)

  1. Consolidated revenue(Operations) Income statement

Thisdisclosure is informative to the shareholder, shows the profitsrealised in the respective income year. Captures the revenues accruedin the financial income period less the operations and sales expensesincurred in the pursuit.

Previousyear’s revenue statement are alongside presented to allow easycomparison at a glance. There is a prescribed or recommended formatfor reasons of consistence, comparison, reliability and compliancewith the stock regulators.

  1. Cash flow statements.

Thisstatement is a crucial to an investor, because it possible for aprofit making corporation to be at the verge of receivership andtakeover bids while recording profits in its revenue statements. Theboard of directors make the decisions on the capital expenditures andsubsequent reinvestment of the cash flows within the income year,which have severe or advantageous implication of the futureprofitability of the entity.

Cashflow statement require technical skills of a financial analyst tomake precise inferences and investment decisions when to buy or sellstocks of the respective corporation.

  1. Notes to accounts

Notesto account relays a disclosure which the standards of accountingprescribe that it must be presented in the published financialstatement, however it isn’t on the face of the financial statement.These disclosures includes: depreciation and amortization charge ofthe year, auditors remunerations, directors’ remunerations,indebtness of the corporation and the accounting basis. Thesedisclosure are necessary to an investor in that, explicitly they knowhow their money has been invested and the sustainability of theinvestment to remain profitable.

MANAGEMENTDISCUSSIONS AND ANALYSIS OF FINANCIAL STATEMENTS:

Managementdiscussion is a flat form where the extensively the corporationsrelays the qualitative information that is not captured in theaccounting policy disclosures yet has value to the investor. Themanagement has an opportunity to attach logics to the reportedfinancial statements and this fills the gap in the analysis of theinterested parties who intends to relay on the financialrepresentations to make an investment decision.

Thesediscussion gives the investor, the near future outlook of thecorporation, the investment return expectation’s only recorded inthe corporation’s policy and strategies which is not captured inthe financial statement and has a vital guide to the a soundinvestment decision

Theanalysis is a save to an investor, makes it easy to deduct leads tobase a sound investment decision without the services of a financialanalysis. Investor reduces the losses and own their decision in alater date in case of the unexpected (capital losses) happens.

Referenceto Verizon communications’ annual reports 2012

Thefollowing management discussions are a light to an (potential)investor:

  1. During 2012 and 2011, strategic investments to improve our competitive position pg22.

Moderncommunication sector is very dynamically evolving hence an themanagement has a moral duty to assure an investor that they havestrategies in place enough to compete favourably for a reasonablereturns and secure a significant market share.

  1. Trends- The management has precisely outlined the next projects and products that in a near future, expected with reasonably sufficient certain are to hit the market in the Corporations favour. An investor has grounds to bid/sell their holding inter alia.

  2. Financial analysis: the management has clearly and conclusively analysed the financial statements even in graphical representations. A potential investor interested can take up stock, is lead through the previous performances and the future expectations at the cost of the corporation.

SEGMENTEDINFORMATION

Thediagram below shows how companies determine segments as prescribed bythe IAS 14

Typesof Segments:

Accordingto Duncan (1997), the types of segments are:

  1. Geographical segments may be based either on where the enterprise`s assets are located or on where its customers are located.

  2. Business segment- based on a corporations single, a set of similar products are reported as segment.

  3. Mixed basis-IFRS8 5.2

Verizoncommunications’ information segments is based on business, has thefollowing reportable segments:-1. wireline segment

2. Wireless segment

Advantagesof segmented financial statements

  1. Gives the management a platform to relay to the interested party information based on the information they use internally, aligning the narrative explanations with the respective financial statements.

  2. Enables the invested to assess better the risk and returns in response to the growing need for information and the attached information value.

  3. Segmented information allows comparability of the corporation’s performance with according to its internal operations lines in the past and useful for sound investment decision.

Caseagainst Segment Reporting:

  1. Subjective to the management options: hence the management might use the loop of choice to achieve other Mara fide interest other than to meet the targeted user financial needs, since the options have different implications and for that matter there is a better segment reporting to the manager otherwise to the investor.

  2. Segment reporting place a lot of emphasis on the short-term qualitative measures of financial performance, for instance a segment may report low profits, because the infrastructure framework in under construction, which will appreciate in the near future, the reports may be misleading compared to of that segment was captured on whole corporate reporting.

  3. Segment reporting is basically the may create information asymmetry in an industry where the competing corporations use different segment reporting and on average this may results to unfair competition in the stock market in undue favour to one corporation.

AUDITORS’REPORT

Thecompany’s auditor has a duty to carry an independent intensive examination, attesting whether the corporation management prepare the books of accounts according to the statutory requirements/company Act provisions.

Theauditors’ report may either be:-

QUALIFIED REPORT- has a legal implication that the to the opinion of theauditor, the referred financial statements don’t represent thetrue and fair state ofthe corporation per se .

UNQUALIFIEDREPORT- Has an interpretation that the opinion of the auditor on thereferred financial statement are true and fair.

Impactof the type of auditor’ report on borrowing capacity of a company:

Aqualified report will reduce the borrowing capacity of a company froma bank, because it financial statements are not reliable henceincreased risk of default, therefore various banks impose higherborrowing cost to the entity/ default risk premium otherwise ‘shyaway’.

Disqualifiedreport render the financial statement reliable to the lender interalia.

Verizonauditor’s report 2012, was unqualified. To the bank the financialstatements are a sound base to decide on any application for loan,which per 2012 annual notes, Verizon and Subsidiaries inc. have agood chances to borrow from banks.

References:

Hooks,L Karen. (2001). Auditingand Assurance.

McGregor,Steve et al. (2010 September). The Application of IFRS: SegmentReporting.

Pwc.(2010). Segment Reporting: AnOpportunity To Explain The Business.

William,Duncan. (2008). SegmentReporting.