The Quality of Financial Information
Referencing this week’s readings and lecture, describe the quality issues related to reporting revenue. What is the importance of understanding various inventory valuation methods in determining the quality of reported profits?

Conflicts with GAAP
Even though firms follow the accounting rules (GAAP) when presenting their financial statements, it is still possible for conflicts of interest to exist between what management wants investors and creditors to see and the economic reality of transactions. Explain how this can occur.

Auditors have come into a department as part of a company-wide audit prior to issuing an audit opinion for the company’s financial reports. In a one- to two-page paper (not including the title and reference pages), explain what the staff should expect the auditors to do. Be sure to include the requirements of the Sarbanes Oxley Act in your explanation.

Financial Ratios
Referencing this week’s readings and lecture, what are the limitations of financial ratios? Classify your answer into at least the following categories: liquidity ratios, activity ratios, leverage ratios, and profitability ratios.

Financial Analysis
R.E.C. Inc.’s staff of accountants finished preparing the financial statements for 2010 and will meet next week with the company’s CEO as well as the Director of Investor Relations and representatives from the marketing and art departments to design the current year’s annual report. Write a paragraph in which you present the main idea(s) you think the company should present to shareholders in the annual report. Why do you think those ideas should be included?

Financial Statement Analysis
Prepare an eight- to ten-page fundamental financial analysis (excluding appendices, title page, abstract, and references page) that will cover each of the following broad areas based on the financial statements of your chosen company:

Provide a background of the firm, industry, economy, and outlook for the future.
Analyze the short term liquidity of the firm.
Analyze the operating efficiency of the firm.
Analyze the capital structure of the firm.
Analyze the profitability of the firm.
Conclude with recommendations for the future analysis of the company (trend analysis).