Financial Accounting Disclosures and Analysis Flashcards

Vocabulary flashcards covering key accounting concepts, financial ratios, disclosures, SEC filings, and audit opinions from the lecture transcript.

Default Risk

The risk regarding a company's ability to pay its bills and financial obligations.

Operational Risk

The risk relating to how a company can withstand events or circumstances that might impair its ability to make a profit.

Going Concern

The evaluation or assumption of whether an entity will continue operating and survive indefinitely in the future.

Horizontal Analysis

An analytical method comparing financial statements across multiple years by calculating dollar change and percentage change relative to a base year.

Vertical Analysis

An analytical technique where each financial statement item is calculated as a percentage of a specified total, such as total sales.

Liquidity

The ability of a company to turn its assets into cash to pay off its current obligations.

Current Ratio

A liquidity ratio calculated as current assets divided by current liabilities ($\text{Current Assets} / \text{Current Liabilities}$).

Quick Ratio (Acid-Test Ratio)

A liquidity metric calculated as quick assets divided by current liabilities ($\text{Quick Assets} / \text{Current Liabilities}$).

Quick Assets

Highly liquid assets used in the quick ratio calculation, comprising unrestricted cash, short-term investments, and accounts receivable.

Working Capital

A measure of operational liquidity calculated as current assets minus current liabilities ($\text{Current Assets} - \text{Current Liabilities}$).

Solvency Ratios

Coverage ratios measuring a company's ability to pay its long-term debts.

Debt to Equity Ratio

A solvency ratio calculated as total liabilities divided by shareholders' equity ($\text{Total Liabilities} / \text{Shareholders' Equity}$).

Times Interest Earned Ratio

A coverage ratio calculated as net income plus interest expense plus income taxes, divided by interest expense ($(\text{Net Income} + \text{Interest Expense} + \text{Income Taxes}) / \text{Interest Expense}$).

Subsequent Events

Events occurring after the end of the fiscal year but before financial statements are issued, such as litigation conclusions, business combinations, or customer bankruptcies.

Related Party Transactions

Non-arm's length transactions conducted between a company and its owners, management, families of owners, or affiliated parties.

Errors

Unintentional misstatements in financial statements.

Fraud

Intentional misstatements in financial statements.

Illegal Acts

Violations of the law such as bribes, kickbacks, and illegal contributions to political candidates.

Form 10-K

An annual report required by the SEC providing detailed, technical financial information, risk factors, and legal disclosures.

EDGAR Database

The SEC database where investors, analysts, and regulators retrieve public company filings like Form 10-K, Form 10-Q, and Form 8-K.

Item 7 of Form 10-K

The specific section of Form 10-K reserved for Management's Discussion and Analysis (MD&A).

Management's Discussion and Analysis (MD&A)

An annual report section providing management's biased but informed perspective on significant trends, events, uncertainties, liquidity, and accounting estimates.

Sarbanes-Oxley Act Responsibility

The legal requirement that corporate executives (CEO and CFO) personally sign off on financial statements and internal controls, making them personally criminally responsible.

Unqualified Opinion

A clean audit opinion stating that financial statements are materially correct according to GAAP without qualification.

Qualified Opinion

An audit report issued when there are specific exceptions or nonconformities with GAAP, or disclosure limitations, but the statements are not entirely invalid.

Adverse Opinion

An audit report issued when financial statements are so materially incorrect that users should not rely on them.

Disclaimer of Opinion

A report issued when an auditor cannot express an opinion due to inability to perform necessary audit procedures or lack of sufficient evidence.

Proxy Statement

An annual SEC document sent to shareholders inviting them to the annual meeting, detailing board elections, executive/director compensation, and auditor reappointments.

ESG Disclosures

Disclosures detailing corporate practices related to Environmental, Social, and Governance factors.