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Understanding Corporate Annual Reports
Financial Accounting 1B – Online
Dr. Seyedin
References: www.ibm.com/financial guide
www.aicpa.org/info/Sarbanes-Oxley2002.asp
A. What is an annual report?
An annual report is a formal report on a company’s performance in the preceding year.
B. Name the federal government agency that requires a publicly held corporation
to keep shareholders informed of its state of business.
The federal government agency that requires a publicly held corporation is the Securities
and Exchange Commission.
C. What is the purpose of auditing financial statements?
The purpose of auditing financial statements is to make sure that the financial statements
are complete, reasonable, and prepared consistent with generally accepted accounting
principles (GAAP).
D. What is the name of rules and regulations used to prepare financial statements?
The name of rules and regulations used to prepare financial statements is the Generally
Accepted Accounting Principles (GAAP).
E. Name two other primary financial information sources.
Two other primary financial information sources are SEC Form 10-K and SEC Form 10-Q.
F. What type of information is provided in the statement of earnings (also called
income statement or profit and loss statement)? Please be as brief as possible.
The statement of earnings is a basic financial statement that presents a summary of a
business entity’s revenues and expenses for a period of time.
G. What type of information is provided in the statement of financial position (also
called balance sheet)? Please be as brief as possible.
The type of information is provided in the statement of financial position includes a
business entity’s assets, liabilities, and owner’s equity as of a specific date.
H. What type of information is provided in the statement of cash flows? Please be
as brief as possible.
The statement of cash flows reports the cash coming in and the cash going out during a
period.
I. Briefly explain the purpose of Public Company Accounting Oversight Board
(PCAOB).
The purpose of Public Company Accounting Oversight Board (PCAOB) is to oversee the
audits of public companies to protect the investors and prevent fraud. It also furthers the
public interest in the preparation of informative, accurate, and independent audit reports.
J. Under the new rules of the Sarbanes-Oxley Act of 2002, to whom does an auditor
report?
The auditor reports to the Public Company Accounting Oversight Board.
K. What caused the new rule to be created?
The new rule was created after a series of high-financial scandals in the early 2000’s that
