According to the textbook, the goal of financial reporting is to report financial information that is transparent and complete and truthfully report the financial performance of a company. Investors and other interested parties need to read and understand all aspects of financing reporting.
Use the Internet to research Verizon Communications� financial statements, annual report, notes to the financial statements, president�s letter, and management discussion and analysis from the most recent year in order to complete this assignment.
Write a five to six (4-5) page paper in which you:
1. Discuss the disclosure requirement on accounting policies, and identify at least two (2)
examples of the most commonly required disclosure. Explain the key ways in which the examples you provided are useful to financial statement users.
Analyze Verizon Communications� disclosure on accounting policies, and give your opinion
on whether or not the information is helpful for decision making.
Provide a rationale for your response.
A company has an obligation to issues its financial statements as per the corporation demands. Financial requirement of many small and medium United States companies are controlled by SEC. SEC has the power to control and edit the content of financial statements. Financial statements undergo constant revisions to meet the current disclosure requirements.
The initial stage of financial statement’s preparations is undertaken by the organization’ own accountants. The data collected by the internal auditors are useful for outside auditors. Outside auditors are selected by organization shareholders under certified public accountant (CPA).
According to the SEC rules, independent auditors should review organization financial data presented in the Quarterly Reports in Form-10-QSB or 10-Q; before they are filed with the SEC. Companies should include their audit reports together with the proxy statements. All information surrounding the audit procedure must be documented. The report of audit committee should be handed with to the proxy statement, and an audit charter.
Public Company Accounting Oversight Board (PCAOB), and the International Auditing and Assurance Standards Board (IAASB) have been keen on accounting disclosure requirements among auditors, educators and managers. Audit report has undergone numerous historical changes, some with positive results while others simply complicated the process. Auditing reporting procedures also have gone through various stages of development; among the recent developments include Auditor’s Discussion and Analysis (AD&A), expansion on the use of emphasis paragraphs, making reports outside financial statements and clarification of current phrases. This paper analyses auditing disclosure requirements with analysis of Verizon Company.
While audit report is a necessary in investment tool, many investors do not have wide accounting knowledge. As such, many challenges in the qualitative presentations affects investors’ decision. It is clear that challenges occur on the consumption and presentation of auditors findings. Most auditors admit facing challenges during audit delivery and development of assurance services. New developments such as clarification of current issues and expansion of paragraph phrases have a lot of impact on the practice. Some of the obvious implications are the doubling the auditors’ tasks. To the investors, disclosure requirements might only create further confusion through numerous auditing phrases and terminologies (SEC, p.1).
As per the New York Stock Exchange and Sarbanes-Oxley Act of 2002, audit committee has a vital role in the financial processes governance. The committee regularly meets to discuss auditing work and its consequences to investors and the auditing team. In the implementation of AD & A. are among the features, which have complicated the disclosure requirements and have increase auditors workload. On the other hand, the disclosure of audit requirement may lead to reorganization or even general overhaul of the audit committee.
Verizon Communication Inc. is responsible for maintaining its internal reporting, every financial year. Based on the established regulations by the Committee of Sponsoring Organization of the Treadway Commission, the company has effective control over its Internal Control-Integrated Framework. The organization management is responsible for the internal auditing control, and assessment of accompanying Report of Management on Internal Control Over Financial Reporting.
Based on the provisions of the Public Accounting Oversight Board, auditing plan and procedures are necessary to determine whether the company has effective internal control over its financial reporting. Audit procedures include creating understanding on internal controls and reporting, assessing material risks, and evaluating the design. Based on the provisions, Verizon Communication Inc. demonstrates a strong internal financial control. Among the materials, which were put into considerations were consolidated balance sheets, consolidated statements if income, statements of changes in equity, and proxy statements.
Public company auditing is critical to investors. Owing to this, policy makers have put a lot of emphases on independent audit. As a result, the Sarbanes-Oxley Act of 2002, added checks and balances to ensure the audit reports clearly reflect organization financial status. Among the areas of concern is the Management Discussion and Analysis – MD&A.
The Management Discussion and Analysis – MD&A part is vital to investors in many ways. It shows the organization’s earnings and revenue growths. Every investor is interested in determining whether a company is growing in sales or losing in the market. Verizon Communication Inc. quarterly reports (10-Q), and annual reports (10-K) are essential for investors to determine the growth of the organization. Based on the financial data presented below, Verizon demonstrates a stable financial growth.
Table 1. Verizon Financial Position between 2008 and 2012
Investors are also interested in monitoring the organization stock performance to determine its strength in the market. The following graph illustrates Verizon Communication Inc. performance between 2007 and 2012.
Comparison of various financial entities across the years are vital indicators of the organization growth in the market. Investors rely on the the Management Discussion and Analysis – MD&A to make this investment decisions. Shareholders also rely on these information to evaluate their organization financial and industrial position. In the discussion analysis are also cash flow trends and debt loads. The chart below shows major finacial highligts for Verizon.
Fig. 3 Verizon 2013 Financial Position
Segmented information is the information of company segments reported in the disclosure in the accompaniment of financial statements. It vital for both public and privately held companies. It equip shareholders and investors with information regarding the growth of each organization unit. The report is useful in determining the growth of the organization units.
Advantages of Segmented Reporting
- It provides information of the performance of various units of the organization. As a result, underperforming units can be singled out.
- Segmented reporting makes it easier for financial analysis to predict future financial profit or losses, especially, when an organization is engaged in diverse activities.
- It reduces generalization of organization performances by identifying the best and worst performing areas.
Disadvantages
- Segmented reporting leaks vital information, which may give competitors leeway into the industry
- High risks of takeover bids for loosing segments, other parties would be interested in managing the units for higher achievements.
- Some managers would shy from taking risks with the available information, especially if it negatively affects the unit.
Verizon has segmented its information across its products. The company has provided information across its voice and data services. Despite its diversification in various areas, Verizon has limited its segment reporting to its major products.
There are four major types of auditor reports. The unqualified or clean opinion is a report by an order, indicating that the information presented to the auditor is free from any form of misinterpretation. It also shows that the document have been maintained as per the provisions of the Accepted Accounting Principles (GAAP). Such audit is independent any third party bias.
Qualified auditors opinion comes out when the company’s financial records are not in accordance with the Accepted Accounting Principles. An auditor writes a report similar to that of qualified opinion but indicates the reason for his/her dissatisfaction with the documents.
Adverse opinion is the worst auditing opinion. It shows that the organization documents does not conform to the Generally Accepted Accounting Principles. It often treated as matter of fraud or an intentions manipulation of the documents by the financial managers.
Disclaimer opinion occurs when an auditor is unable to complete accurate reporting. This can be due to various reasons, such as lack of the required financial documents or poor corporation among the concerned team. The auditor writes disclaimer opinion explaining the issues.
References
Ackerman, A. “U.S. senators seek transparency for auditor discipline”. Wall Street Journal. 2011. (November 18).
Public Company Accounting Oversight Board (PCAOB). 2011b. “PCAOB roundtable on auditor’s reporting model.
Securities and Exchange Commission (SEC). “Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002.” 2003. Release No. 33-8177. Washington, D.C.: SEC.
2012 Annual Report. Verizon. PDF.
2013 Annual Report. Verizon. PDF.
