• Analyze and explain the requirements for full disclosure in financial reporting.
• Evaluate the importance and impact of full disclosure or non-disclosure in accounting practices.
• Use technology and information resources to research issues in intermediate accounting.
• Write clearly and concisely about intermediate accounting using proper writing mechanics.
The financial reports of the company serve as a very important source of decision making by the stakeholders of the company. The financial statements reflect the financial worthiness of the company. The financial reports that are having inadequate information will discourage the prospective investors to invest in the company. The investors will not have any basis for deriving conclusions about the performance of the company. Verizon Communications’ financial reports, annual reports, company’s management discussion and notes to financial statements are analyzed critically. The analysis will bring out the degree of effectiveness of the company in preparing financial statements and the impact of the financial statements on the company’s growth (Bezborodova, 2013).
Disclosure Requirements on accounting policies
Verizon Communications have disclosed in its notes to consolidated financial statements a summary of its accounting policies. They have declared that they maintain their financial statements according to the U.S. accepted accounting policies(GAAP). The company has disclosed its method of estimation. The accounting estimates used by the company includes the allowance for doubtful debts, the fair value of financial securities, the non-recognition of tax benefits, etc. The company depreciates plant and machinery on a straight-line basis. The company has disclosed the basis of its derivative instruments transactions. The disclosure states that the company enters into derivative transactions to maintain the fluctuations in foreign currency exchange rates. The company further declares that it does not hold derivative for the purpose of their trading. The derivatives are valued at fair value (Elliott & Elliott, 2008).
The accounting estimates are based on the prudence and the expert knowledge of the report preparers. The accounting estimates reflect an approximated amount of transactions that are to be debited or credited in the financial statements. The users of the financial reports put their reliance on the financial statements if the measurement of the accounting estimates is fair. The disclosure of derivative transactions will help the investors in ascertaining the kind of investment activities (‘Financial Statements’, 2012).
The company has disclosed a comprehensive summary of its accounting policies. All the important accounting policies like the method of revenue recognition, accounting estimates, inventory valuation, asset depreciation, goodwill valuation, foreign currency transactions, etc. are properly disclosed. The disclosures provide a strong base for coming to a conclusion regarding the fair and true position of the company. The company has also made disclosures of the currently adopted accounting standards. The company has also mentioned the effect of the currently adopted accounting standards. The disclosures of the accounting policies of Verizon Communications is appropriate and forms a strong base for the investors decision making (Greuning, 2006).
The Management’s Discussion has stated the increase in consolidated revenues of 2014 as compared to the revenue of 2013. The discussion has explained the reason for the increase in revenues. The reason being higher profits from Wireless. The management discussion includes the outcome of the company’s activities. The discussion on the performance of both the segments of the company is done. The company has indirectly acquired Vodafone’s shares of 45%. This has led to the complete ownership of Verizon Wireless. The Wireline segment has disposed a non-profit unit. The company has declared a quarterly dividend during 2014. The company has increased the quarterly dividend by 3.8%. The company proudly declares that the company is paying a regular dividend since eight years (Wen, 2012). The company has also mentioned that the aim of the company is to render long-term value for the shareholders of the company. The company also promises that the company will make all possible investments that will benefit the interest of the shareholders. Verizon Communications estimates to incur capital expenditure during 2015 that may result in increasing the capacity and meeting the customers’ expectations. The company also wishes that the capital expenditures may reduce as a percentage of revenue in 2015 as compared to 2014 (Holtzman, 2008).
The users of the financial statements will be able to analyze the performance of the company by evaluating the increased revenue in 2014. The prospects of the company may appear favorable. The prospective investors can take decisions on the basis of acquisition and divestment made by the company. The acquisition has made the company the complete owner of Verizon Wireless. The company has paid regular dividends over the past years. The company cares to enhance the profitability of its shareholders. The low percentage of capital expenditure will not only increase the revenue of the company but also the capacity of the company in delivering services to the increased customers demand (Kanodia, 2006).
Market segmentation is done so that the company will be able to deliver best products or services to a particular segment of people or market. The companies determines segments based on various variables like region-wise, location-wise, demand-wise, price-wise, etc. The advantages of segment reporting of financial data are as follows-
1. The segment reporting reflects the profit generating and non-profit areas.
2. The investors can observe the activities of the company in a better way.
3. The companies can make a comparative analysis of competitors based on segments.
The disadvantages of segment reporting are as follows-
1. The data can be manipulated to present a profitable figures of some segments.
2. The segments may not be comparable.
3. The segment reporting primarily focuses on present data rather than past trends.
The advantages are far more than the disadvantages of segment reporting. The segment reporting reflects the units that are loss bearing. The company can take steps to eliminate the loss. The segment reporting also helps in dividing and fixing responsibilities (Stocken, 2012).
Verizon Communications have two segments- Wireless and Wireline. The company reflects the governmental taxes on both the segments on a net basis. The company has reflected separate operating financial information of its two segments. The company has also reflected individual assets employed in individual segments. The company’s financial statements also represent a reconciliation to the consolidated segment reporting (Pounder, 2009).
The segment reporting should be done in such a manner that it facilitates comparison across industries. The company should reflect the transfer pricing provisions of the company in an elaborative manner. The company has stated a general information that the intersegment sales of products and services are done at the current market price.
The Auditors Report of Verizon expresses their view that the financial reports present fair and true view of the financial position of the company as at December 31, 2014. The auditors’ report states that the financial statements of the company is prepared by The US generally accepted accounting principles. The audit report also states that because of the unavoidable shortcomings of internal control, there may not be an adequate reflection of errors. The internal controls often become insufficient due to the changes in circumstances. The auditors have expressed their unqualified opinion in respect of internal control mechanism of the company based on the COSO criteria. The company records the transactions properly so that they can well be reflected in the financial statements. The cash inflow and outflow are being conducted after proper authorization by the management of the company. There is adequate mechanism on the detection and prevention of fraud. There are two types of audit reports in the annual reports. One expresses an opinion on the internal control mechanism of the company, and the other expresses an opinion on the preparation of financial statements of the company (Stickney, Brown & Wahlen, 2007).
The bank will consider the auditors’ report before advancing loan to the company. The bank will refer the auditors’ report to observe whether the company’s financial statements reflect a true financial position of the company or not. Many a times, the companies show an overvalued presentation of its financial statements to obtain bank loans. The bank will also overview the internal control reports to ascertain whether all the transactions are conducted under a proper authorization or not. Thus, the auditors’ report will help the bank to judge the credibility of the company.
The analysis of Verizon Communications has resulted in arriving at the judgment that the company adheres to the prescribed accounting standards and accounting regulations. The company cares for the interests of its shareholders. The company has good future growth prospective. The company carries out its operations effectively. The company has done segment reporting in an understandable manner. The company has good credit worthiness. The company succeeds in attracting prospective investors. Even the company succeeds in maintaining the confidence of the existing investors.
Bezborodova, Y. (2013). The analysis of financial statements as approach to the assessment of financial stability of the enterprise. RAJ, 24(2). doi:10.15535/69
Elliott, B., & Elliott, J. (2008). Financial accounting and reporting. Harlow: Financial Times Prentice Hall.
Financial Statements. (2012). Review Of Income And Wealth, 58(4), 774-785. doi:10.1111/j.1475-4991.2012.00526.x
Greuning, H. (2006). International financial reporting standards. Washington, D.C.: World Bank.
Holtzman, M. (2008). What’s new in financial reporting. Florham Park, N.J.: Financial Executives Research Foundation.
Kanodia, C. (2006). Accounting Disclosure and Real Effects. Foundations And Trends® In Accounting, 1(3), 167-258. doi:10.1561/1400000003
Pounder, B. (2009). Convergence guidebook for corporate financial reporting. Hoboken, N.J.: John Wiley & Sons.
Stickney, C., Brown, P., & Wahlen, J. (2007). Financial reporting, financial statement analysis, and valuation. Mason, OH: Thomson/South-Western.
Stocken, P. (2012). Strategic Accounting Disclosure. Foundations And Trends® In Accounting, 7(4), 197-291. doi:10.1561/1400000027
Wen, X. (2012). Voluntary Disclosure and Investment*. Contemporary Accounting Research, 30(2), 677-696. doi:10.1111/j.1911-3846.2012.01169.x
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