Yichao Li
Student ID: 635403
Course: Financial statement analysis
Article Summary #1
I. Citation
Author: Jesswein, Kurt
Title of Journal: Analyzing financial statements with potentially misreported cost of goods sold
figure (Journal of Finance and Accountancy)
Volume No.6 2011 March
Page numbers:1-10
II. Summary
Based on the importance effect of financial statement analysis on each company’s decision, this
article focused on some problems deriving from improper record of depreciation or amortization,
which will affect the accuracy of financial analysis in all aspect.
To begin with, this paper gives the reliable definition of depreciation in professional associations,
U.S. GAAP and the IFRS., and the fundamental dogma it follows—the matching principle. As well as,
in this part the author points that there possibly exists the over-use of depreciation despite the
credibility of absorption costing system.
Next, this paper testi*es that the companies should pay a?ention to the potential problems
through the concerns of the authority, SEC and of the example of EDGAR (Electronic Data-
Gathering, Analysis, and Retrieval).
To move on, this paper digs out the deep problems of financial statement analysis. With simple
but crucial introduction of what the financial statement analysis is, the author points that because
of the complexity of its conduction and policy environment, the companies are always allowed to
hide or cover up some essential factors that should not be neglected originally. In addition, it is a
fact that the company management have some convenience and priority to figure out the truth of
the operation of the company than the external users of the financial statements. In hence, the
external users are tended to be misleading and confused when they just face the financial data. In
the rest of this section, this paper gives a critical view that the depreciation of operating assets
inCuence in all the ways of financial statements because any deviation of it can make the external
users hold doubt on their direct financial analysis, such as common-sized income statements, many
types of financial ratios, even cash Cow analytics, and so on.
AEer the qualitative analysis above, this journal goes on some quantitative analysis trying to elicit
the intrinsic and possible impact of depreciation on financial statement analysis. By showing the
percentage of depreciation in cost of goods sold and inventory of realistic industry group, we can
