Chapter 5 - Communicating and interpreting accounting information. In this chapter you will learn: Recognize the people involved in the accounting communication process, their roles in the process, and the guidance they receive from legal and professional standards; identify the steps in the accounting communication process, including the issuance of press releases, annual reports, quarterly reports, and SEC filings, as well as the role of electronic information services in this process. | Chapter 5 Communicating and Interpreting accounting information McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 5: Communicating and Interpreting Accounting Information. Understanding the business Corporate Governance: Procedures to ensure that the company is managed in the interest of the shareholders Sarbanes-Oxley Act: A law which strengthens financial reporting and corporate governance for public companies. 5-2 Most businesses invest in corporate governance: procedures designed to ensure that the company is managed in the interests of the shareholders. Much of the corporate governance system is aimed at ensuring integrity in the financial reporting process. The extreme accounting scandals at Le-Nature’s (discussed in Chapter 1), Enron, and WorldCom caused their stock to become worthless. In an attempt to restore investor confidence, Congress passed the Public Accounting Reform and Investor Protection Act (the Sarbanes-Oxley Act ), which strengthens financial reporting and corporate governance for public companies. Three conditions are necessary for financial statement fraud to occur. There must be: (1) an incentive to commit fraud, (2) the opportunity to commit fraud, and (3) the ability to rationalize the misdeed. These conditions make up what antifraud experts call the fraud triangle. A good system of corporate governance is designed to address these conditions. Players in the Accounting Communication Process 5-3 This graphic identifies the major players involved in ensuring the integrity of the financial reporting process. They include management, regulators, auditors, and the board of directors. The Disclosure Process: Annual Reports and Form 10-K Annual reports normally include: Four basic financial statements. Related notes (footnotes). Report of Independent Accountants (Auditor’s Opinion) if the statements are audited. The Form 10-K is the annual report that publicly traded companies must file with the . | Chapter 5 Communicating and Interpreting accounting information McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 5: Communicating and Interpreting Accounting Information. Understanding the business Corporate Governance: Procedures to ensure that the company is managed in the interest of the shareholders Sarbanes-Oxley Act: A law which strengthens financial reporting and corporate governance for public companies. 5-2 Most businesses invest in corporate governance: procedures designed to ensure that the company is managed in the interests of the shareholders. Much of the corporate governance system is aimed at ensuring integrity in the financial reporting process. The extreme accounting scandals at Le-Nature’s (discussed in Chapter 1), Enron, and WorldCom caused their stock to become worthless. In an attempt to restore investor confidence, Congress passed the Public Accounting Reform and Investor Protection Act (the Sarbanes-Oxley Act ),
