Presentation and Disclosures Relating to Debt
Depending on the maturity structure of a company’s debt obligations, its debt (or portions of it) can be reported either in the non-current liabilities section or the current liability section of the balance sheet. Notes to the financial statements can…
Motivations for Leasing Assets
When a company wishes to obtain the use of an asset, it can either purchase or lease it. A lease is a contract between a lessor, the owner of an asset, and a lessee, the other party which is seeking…
Leases from a Lessor’s Perspective
If the lessor substantially transfers all the risks and rewards incidental to legal ownership, the lease is reported as a finance lease. Consequently, the lessor reports a lease receivable on its balance sheet and removes the leased asset from its…
Distinguish Between Conservative and Aggressive Accounting
Companies have a certain level of discretion concerning the methods they use to evaluate and report their financial performance. Investors are often concerned with whether the accounting method used is more aggressive or conservative as this will affect their ability…
Motivations to Issue Low-quality Financial Reports
Several reasons would lead a company’s management to issue low-quality financial reports. The prevalence of this practice is, however, mitigated by the existence of a robust regulatory regime that disciplines financial reporting quality. Management Motivations for Low-quality Financial Reporting< The…
Conditions to Low-quality Financial Reports
The decision to issue low-quality financial reports ultimately lies in the hands of individuals. For these individuals, namely managers, to succeed in doing this, the conditions must be convenient. Conducive Conditions for Issuing Low-quality Financial Reports The issuance of low-quality…
Mechanisms That Discipline Financial Reporting Quality
Given the negative implications that low financial reporting quality can have, disciplinary mechanisms need to be established to promote high reporting quality. Even though several mechanisms exist, there are certain limitations to their effectiveness. Mechanisms That Discipline Financial Reporting Quality…
Financial Reporting – Presentation Choices
The presentation choices adopted by a company when preparing its financial statements can significantly influence analysts’ and other users’ opinions on these statements. These presentation choices include both GAAP and non-GAAP measures. Presentation Choices That Influence Analyst Opinions Earnings before…
Accounting Methods Used to Manage Earnings
Investors should be mindful of how the choice of accounting method can affect financial reporting. The accounting methods selected do not have to involve complex accounting standards to significantly impact the timing of revenue and the resulting financial reports. This…
Warning Signs and Methods for Detecting Manipulations
Financial manipulation leaves a trail, like tracks on sand or snow. The manipulation could be time-related or location-related. An example of time-related manipulations is expenses capitalization, which would decrease the expenses of the current period and distribute the cost over…
