accounting & financial reporting
DESCRIPTION
Accounting & Financial Reporting. BUSG 503 Michael Dimond. Financial Accounting for MBAs. Let’s review Exam #1 NOPM = NOPAT/Sales NOPAT = EBIT adjusted for tax effect. Operating Income & Analysis. Revenue Recognition Research & Development Restructuring Tax EPS: Earnings Per Share - PowerPoint PPT PresentationTRANSCRIPT
Accounting & Financial Reporting
BUSG 503Michael Dimond
Michael DimondSchool of Business Administration
Financial Accounting for MBAs
• Let’s review• Exam #1
• NOPM = NOPAT/Sales• NOPAT = EBIT adjusted for tax effect
Michael DimondSchool of Business Administration
• Revenue Recognition• Research & Development• Restructuring• Tax• EPS: Earnings Per Share
• Other Issues• Foreign Currency Translation• Extraordinary Items
Operating Income & Analysis
Michael DimondSchool of Business Administration
Michael DimondSchool of Business Administration
Michael DimondSchool of Business Administration
• Gross versus net revenues
• Sales on consignment
• Percentage of Completion
• Channel stuffing
• Barter transactions
• Mischaracterizing transactions as arm’s-length
• Pending execution of sales agreements
• Failure to take delivery
• Nonrefundable fees
Revenue Recognition
Michael DimondSchool of Business Administration
• What is R& D as a percent of sales?
• What uses will R&D serve?
• Why is it expensed instead of capitalized?
• How effective is their R&D effort?
• How does R&D as a percent of sales compare to peer companies?
Research & Development
Michael DimondSchool of Business Administration
• Components:• Employee severance or relocation costs• Asset write-downs• Other (i.e., contract termination costs, legal expenses, etc.)
• A company is required to have a formal restructuring plan • Approved by its board of directors before any restructuring charges are
accrued.
• Identify the relevant employees and notify them of its plan.
• In subsequent years, the company must disclose in its footnotes • the original amount of the liability (accrual)
• how much of that liability is settled in the current period (such as employee payments)
• how much of the original liability has been reversed because of cost overestimation, any new accruals for unforeseen costs, and the current balance of the liability.
Restructuring
Michael DimondSchool of Business Administration
Restructuring
Michael DimondSchool of Business Administration
• Companies maintain two sets of accounting records, • one for preparing financial statements for external constituents, including current and
prospective shareholders, and • another for reporting to tax authorities.
• Two sets of accounting records are necessary because the U.S. tax code is different from GAAP.
• The difference creates an item on the balance sheet• Deferred tax liabilities arise when the net book value of liabilities is less for
financial reporting than for tax reporting, or when the net book value of assets is greater for financial reporting than for tax reporting.
• Deferred tax assets arise when the net book value of liabilities is greater for financial reporting than for tax reporting, or when the net book value of assets is smaller for financial reporting than for tax reporting.
• When a company reports a loss for tax purposes, it can carry back that loss for up to two years to recoup previous taxes paid. Any unused losses can be carried forward for up to twenty years to reduce future taxes.
Tax
Michael DimondSchool of Business Administration
Tax
Michael DimondSchool of Business Administration
•
EPS: Earnings Per Share
Michael DimondSchool of Business Administration
Foreign Currency Translation
Michael DimondSchool of Business Administration
• Two categories of items are presented “below-the-line”:• Discontinued operations Net income (loss) from business segments that have
been or will be sold, and any gains (losses) on net assets related to those segments sold in the current period.
• Extraordinary items Gains or losses from events that are both unusual and infrequent.
• The following items are generally not reported as extraordinary items:• Gains and losses on retirement of debt
• Write-down or write-off of operating or nonoperating assets
• Foreign currency gains and losses
• Gains and losses from disposal of specific assets or business segment
• Effects of a strike
• Accrual adjustments related to long-term contracts
• Costs of a takeover defense
Extraordinary Items
Michael DimondSchool of Business Administration
• Exercises E5-22, 23, 24, 27, 28, 31. We will go through these in class
• Read Chapter 6 & preview the Mini Exercises
For next week…
Michael DimondSchool of Business Administration