Financial Accounting Ch. 5
Sarbanes-Oxley Act
A law which strengthens U.S. financial reporting and corporate governance regulations
Press Release
A written public news announcement normally distributed to major news services
Material Amounts
Amounts that are large enough to influence a user's decisions
Unqualified (Clean) Audit Option
An auditor's statement that the financial statements are fair presentations in all material respects in conformity with GAAP
Board of Directors
Elected by stockholders to represent their interests; its audit committee is responsible for maintaining the integrity of the company's financial reports
Operating Income
Equals net sales less cost of goods sold and other operating expenses
Gross Profit Percentage Ratio
Gross Profit/Net Sales
Private Investors
Individuals who purchase shares in companies
Institutional Investors
Managers of pension, mutual, endowments, and other funds that invest on the behalf of others
Return on Assets
Net Income/Average Total Assets (beginning total assets+ending total assets/2)
Net Profit Margin
Net Income/Net Sales
Total Asset Turnover
Net Sales/ Average Total Assets
Gross Profit (Gross Margin)
Net sales less cost of goods sold
Earnings Forecast
Predictions of earnings for future accounting periods, prepared by financial analysts
Cash Flows from Operating Activities
Reports cash flows associated with earning income
Cash Flows from Financing Activities
Reports cash flows associated with financing the business through borrowing and repaying loans from financial institutions, stock (equity) issuance and repurchases, and dividend payments
Cash Flows from Investing Activities
Reports cash flows associated with the purchase/sale of (1) productive assets (other than inventory) and (2) investments in other companies
Cost Effectiveness
Requires that the benefits of accounting for reporting information outweigh the costs
Income Before Income Taxes
Revenues minus all expenses except income tax expense
Lenders (Creditors)
Suppliers and financial institutions that lend money to companies
Securities and Exchange Commission (SEC)
The U.S government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements
Form 10-K
The annual report that publicly traded companies must file with the SEC
Public Company Accounting Oversight Board (PCAOB)
The private sector body given the primary responsibility to issue detailed auditing standards
Financial Accounting Standards Board (FASB)
The private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles
Form 10-Q
The quarterly report that publicly traded companies must file with the SEC
Form 8-K
Used by publicly traded companies to disclose any material event not previously reported that is important to investors (i.e. auditor changes, mergers, etc)
