Chapter 17 - Evaluating quality of financial reports. This chapter demonstrate the use of a conceptual framework for assessing the quality of a company’s financial reports, explain potential problems that affect the quality of financial reports, describe how to evaluate the quality of a company’s financial reports,. | Evaluating quality of financial reports Presenter’s name Presenter’s title dd Month yyyy Note: The Satyam example at the end of the presentation is an extended example that can be used on a standalone basis. LEARNING OUTCOMES Demonstrate the use of a conceptual framework for assessing the quality of a company’s financial reports Explain potential problems that affect the quality of financial reports Describe how to evaluate the quality of a company’s financial reports Evaluate the quality of a company’s financial reports Describe the concept of sustainable (persistent) earnings Describe indicators of earnings quality Explain mean reversion in earnings and how the accruals component of earnings affects the speed of mean reversion Evaluate the earnings quality of a company Describe indicators of cash flow quality Evaluate the cash flow quality of a company Describe indicators of balance sheet quality Evaluate the balance sheet quality of a company Describe sources of information about risk 1 Financial Reporting Quality and Earnings Quality are interrelated 2 LOS. Demonstrate the use of a conceptual framework for assessing the quality of a company’s financial reports The concepts of earnings quality and financial reporting quality are interrelated because a correct assessment of earnings quality is possible only when there is some basic level of financial reporting quality. Beyond this basic level, as the quality of reporting increases, the ability of financial statement users to correctly assess earnings quality and to develop expectations for future performance arguably also increases. Low Financial Reporting Quality: When financial reporting quality is low, earnings quality cannot be assessed. For example, consider erroneous financial statements. If the information presented is materially incorrect, it would be useless in assessing whether the company performed well or poorly. High Financial Reporting Quality: When financial reporting quality is high, it is . | Evaluating quality of financial reports Presenter’s name Presenter’s title dd Month yyyy Note: The Satyam example at the end of the presentation is an extended example that can be used on a standalone basis. LEARNING OUTCOMES Demonstrate the use of a conceptual framework for assessing the quality of a company’s financial reports Explain potential problems that affect the quality of financial reports Describe how to evaluate the quality of a company’s financial reports Evaluate the quality of a company’s financial reports Describe the concept of sustainable (persistent) earnings Describe indicators of earnings quality Explain mean reversion in earnings and how the accruals component of earnings affects the speed of mean reversion Evaluate the earnings quality of a company Describe indicators of cash flow quality Evaluate the cash flow quality of a company Describe indicators of balance sheet quality Evaluate the balance sheet quality of a company Describe sources of information about .
