HIGHLIGHTS OF CHAPTER 3: Balance Sheet

1
HIGHLIGHTS OF CHAPTER 3 Balance Sheet

• February 2004

2
SIGNIFICANT ISSUES

• Uses limitations of balance sheet
• Current v. noncurrent
• Asset classifications
• Liability equity classifications
• Disclosures
• MD A
• Audit report
• Process of financial (risk) analysis
• Liquidity financing ratios

3
USES LIMITATIONS

• Model at a point in time
• Cost v. current value
• Depreciation/Amortization
• Value of monetary unit
• Shortcomings in current model
• R D
• Intangibles
• Human resources

4
USES LIMITATIONS

• Methods chosen
• Role of judgment
• Relationships to other financial statements
• Relationships within balance sheet
• Liquidity, solvency size

5
CURRENT V. NONCURRENT

• Concept of classifications
• Definitions of assets, liabilities equity
• Operating cycle v. 12 months
• Cash equivalents v. short-term investments
• Cash restrictions

6
ASSET CLASSIFICATIONS

• Distinguishing kinds of assets
• Caption, parenthetical /or note disclosure

7
LIABILITY EQUITY CLASSIFICATIONS

• Distinguishing kinds of liabilities
• Current maturities of long-term debt
• Paid-in/invested equity v. retained earnings
• Cumulative other comprehensive income
• Treasury stock

8
DISCLOSURES

• Notes integral part of statements
• Summary of significant accounting policies
• Significant subsequent events
• Related-party transactions balances
• Errors irregular illegal acts

9
MANAGEMENT DISCUSSION ANALYSIS

• Explanation of significant aspects of financial
  statements
• Report of managements responsibilities for
  statements

10
AUDITORS REPORT

• Standard unqualified wording
• Unqualified report with explanatory paragraph
• Qualified, adverse disclaimer reports

11
FINANCIAL ANALYSIS

• Reporting model outdated? Risk?
• Focus on performance measurement
• Comparative analysis
• Trends
• Relationships
• Variations analysis (horizontal)
• Common-size analysis (vertical)
• Ratios

12
OTHER ISSUES

• Executive compensation options
• Segment reporting