Chapter 5 - Communicating and Interpreting Accounting Information


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  • 3 months ago by vince

  • An adverse opinion is a professional opinion made by an auditor indicating that a company's financial statements are misrepresented, misstated and do not accurately reflect its financial performance and health

  • A disclaimer of opinion is a statement made by an auditor that no opinion is being given regarding the financial statements of a client.

  • A qualified opinion is an auditor's opinion that the financials are fairly presented, with the exception of a specified area

  • An unqualified opinion is an independent auditor's judgment that a company's financial statements are fairly and appropriately presented, without any identified exceptions, and in compliance with generally accepted accounting principles (GAAP)

Earnings Per Share = Net Income / # of shares outstanding

  • # of shares outstanding is the average over the year

Gross Profit Percentage = Gross Profit / Net Sales

Return on Assets (ROA) = Net Income / Average Total Assets

similar to Topic 479

ROA Profit Driver Analysis

ROA = Net Profit Margin X Total Asset Turnover

Net Income / Average Total Assets = Net Income / Net Sales X Net Sales / Avg Total Assets

To increase ROA either increase Net Profit Margin or increase Asset Turnover Ratio

Reporting and Safeguarding cash

Multistep (because you're breaking it down) is the same as classified (because you're classifying the items) income statement

For example

  • Income Before Taxes
  • Provision for income taxes
  • Net Income