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Auditor’s and Management’s Reports PepsiCo Inc. Example

Auditor’s and Management’s Reports PepsiCo Inc. Example

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Auditor’s and Management’s Reports

Review Question



The MD&A section of a company's annual report is to cover the following three items:

a. income statement, balance sheet, and statement of owners' equity.

b. income statement, balance sheet, and statement of cash flows.

c. liquidity, capital resources, and results of operations.

d. changes in the stock price, mergers, and acquisitions.



LO 3



Copyright ©2019 John Wiley & Sons, Inc.



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Auditor’s and Management’s Reports

Review Question - Answer



The MD&A section of a company's annual report is to cover the following three items:

a. income statement, balance sheet, and statement of owners' equity.

b. income statement, balance sheet, and statement of cash flows.

c. liquidity, capital resources, and results of operations.

d. changes in the stock price, mergers, and acquisitions.



LO 3



Copyright ©2019 John Wiley & Sons, Inc.



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Auditor’s and Management’s Reports Management’s Responsibilities



Management’s Responsibilities for Financial Statements

The Sarbanes-Oxley Act requires the SEC to develop guidelines for all publicly traded companies to

report on management’s responsibilities for, and assessment of, the internal control system.



LO 3



Copyright ©2019 John Wiley & Sons, Inc.



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Auditor’s and Management’s Reports

Home Depot Example



LO 3



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Learning Objective 4

Identify Reporting Issues Related to Fraudulent Financial Reporting and

Financial Forecasts



LO 4



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Current Reporting Issues

Fraudulent Financial Reporting

Intentional or reckless conduct, whether act or omission, that results in materially misleading

financial statements.

Frauds involving such well-known companies as Enron, WorldCom, Adelphia, and Theranos indicate

that more must be done to address this issue.



LO 4



Copyright ©2019 John Wiley & Sons, Inc.



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Fraudulent Financial Reporting

Global Survey- Growth of Economic Crimes



Source: Recent global survey of over 3,000 executives from 54 countries documented the types of economic crimes.



LO 4



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Fraudulent Financial Reporting

Trends in Reported Fraud



A wide range of economic crimes are reported.

LO 4



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Fraudulent Financial Reporting

Causes



Causes of Fraudulent Financial Reporting

Common causes are the desire







to obtain a higher stock price,







to avoid default on a loan covenant, or







to make a personal gain of some type (additional compensation, promotion).



LO 4



Copyright ©2019 John Wiley & Sons, Inc.



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Fraudulent Financial Reporting

Opportunities



Causes of Fraudulent Financial Reporting

Common opportunities for fraudulent financial reporting



1.



Absence of a board of directors or audit committee.



2.



Weak or nonexistent internal accounting controls.



3.



Unusual or complex transactions.



4.



Accounting estimates requiring significant judgment.



5.



Ineffective internal audit staffs.



LO 4



Copyright ©2019 John Wiley & Sons, Inc.



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Current Reporting Issues

Internet Financial Reporting



A large proportion of companies’ websites contain links to their financial statements and other disclosures.







Allows firms to communicate more easily and quickly with users.







Allow users to take advantage of tools such as search engines and hyperlinks to quickly find information

about the firm.







Can help make financial reports more relevant by allowing companies to report expanded

disaggregated data and more timely data.



LO 4



Copyright ©2019 John Wiley & Sons, Inc.



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