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10.0. Financial Reporting Quality - Coggle Diagram

- - - - Relevance
        
        Infor presented in the FS is useful to users in making decisions. Revelant infor must also be material in that knowledge of it would likely affect the decisions of users of FS
      - Faithful representation
        
        The qualities of completeness, neutrality, and the absence of errors
  - - - Sustainability
        
        Sustainability can be evaluated by determining the proportion of reported earnings that can be expected to continue in the future
      - Level of earnings
        
        The importance of the level of earnings is that reported earnings must be high enough to sustain the firm's operations and existence
  - - - LOW financial reporting => BỎ LUÔN, ko đánh giá tiếp
    - - HIGH financial reporting
        HIGH earning quality => increases company value
      - HIGH financial reporting
        LOW earnings quality => decrease company value
- - - - Increase the amount of debt reported on the BS
      - Decrease the amount of revenues, earnings and/or operaring cash flow
    - - Drawbacks
        
        Conflicts with the concept of Neutrality
      - Benefits
        
        Reducing the possibility of litigation (kiện tụng)
        
        Reducing current period tax liability
        
        Reducing the interests of those who have less complete information
  - - - Inflate the amount of revenues, earnings and/or operating cash flow
      - Decrease the amount of expenses reported in the period and/or the amount of debt on the BS
  - - - (1). Whether the reporting encivronment is conductive to misreporting?
      - (2). Whether a company's management may be motivated to issee financial reports that are not high quality?
    - - weak internal controls
      - The BOD provides inadequate oversight
      - Applicable accounting standards provide a large range of acceptable accounting treatments
    - - • Mask poor performance
      - • Boost the stock price
      - • Increase personal compensationa
      - • Avoid violation of debt covenants
      - Increase the probability of exceeding next period’s forecasts
      - • Meet or beat expectations
- - - - • Display the most comparable GAAP measure with equal prominence
      - • Provide an explanation by management as to why the non-GAAP measure is thought to be useful.
      - • Reconcile the differences between the non-GAAP measure and the most comparable GAAP measure.
      - • Disclose other purposes for which the firm uses the non-GAAP measure.
      - • Include, in any non-GAAP measure, any items that are likely to recur in the future, even those treated as nonrecurring, unusual, or infrequent in the FS