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Subject 3. Other financial information sources.
Other financial information sources.
Financial Notes and Supplementary Schedules

Financial footnotes are an integral part of the financial statements. They provide information about the accounting methods, assumptions and estimates used by management to develop the data reported in the financial statements. They provide additional disclosure in such areas as fixed assets, inventory methods, income taxes, pensions, debt, contingencies such as lawsuits, and sales to related parties, etc. They are designed to allow users to improve assessments of the amounts, timing, and uncertainty of the estimates reported in the financial statements.

Supplementary Schedules: In some cases additional information about assets and liabilities of a company is provided as supplementary data outside the financial statements. Examples include oil and gas reserve reported by oil and gas companies, the impact of changing prices, sales revenue, operating income and other information for major business segments. Some of the supplementary data are unaudited.

Management Discussion and Analysis (MD&A)

This requires management to discuss specific issues on the financial statements, and to assess the company's current financial condition, liquidity, and its planned capital expenditure for the next year. An analyst should look for specific concise disclosure as well as consistency with footnote disclosure.

Note that the MD&A section is not audited and it is for public companies only.

Auditor's Reports

See next subject for details.

Other Sources of Information

  • Interim reports. Publicly held companies must file form 10-Q (interim report) on a quarterly basis. It is far less detailed than annual financial statements, as it contains unaudited basic financial statements, unaudited footnotes to financial statements, and management discussion and analysis.

  • Proxy statements. An analyst should look for litigation, executive compensation, and related-party transactions, known as proxy statements. Proxy statements should be considered as an integral part of the financial report, and they may contain special compensation "perks" for officers and directors, and also lawsuits and other contingent obligations facing the company.

  • Companies' websites, press releases and conference calls.
Practice Question 1

Which one of the following is the best resource for an analyst who wants to find management's explanations for changes in financial and operating data, as well as management's assessment of future opportunities and risks?

A. Annual proxy statements
B. Management's discussion and analysis
C. Financial statements

Check AnalystNotes for the correct answer and a detailed explanation.

Practice Question 2

In the annual report, where can a financial analyst find a discussion of the reasons for sales growth or decline?

A. management discussion and analysis
B. auditor's report
C. notes to the financial statements
D. on the face of the income statement

Check AnalystNotes for the correct answer and a detailed explanation.

Practice Question 3

Which of the following would not appear directly on the statement of cash flows but should be shown in a supplementary schedule?

A. Cash dividends paid
B. Purchase of a building for cash
C. Issuing common stock for cash
D. Purchasing land by issuing a mortgage note
E. Receiving cash dividends from an investment in stock

Check AnalystNotes for the correct answer and a detailed explanation.

Practice Question 4

If you want to find a company's accounting policies such as accounting methods, estimates and assumptions, you should look

A. in foot notes.
B. in the auditor's report.
C. in the MD&A.
D. in supplementary schedules.

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Practice Question 5

Interim financial statements

I. include less detail than the annual report.
II. are in condensed form.
III. are not subjected to a full audit.

Check AnalystNotes for the correct answer and a detailed explanation.

Practice Question 6

What part of the annual report contains forward looking information?

A. balance sheet and income statement
B. auditor's report
C. management discussion and analysis

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Practice Question 7

Where would an investor find a company's management discussion of results of operations, capital resources, and outlook based on known trends?

A. SEC 8-K.
B. Auditor's Opinion in Annual Report.
C. Management discussion & analysis in Annual Report.

Check AnalystNotes for the correct answer and a detailed explanation.

Practice Question 8

Which of the following best highlights a company's financial condition and overview of the results of operations?

A. The statement of cash flows.
B. Management's discussion and analysis.
C. The security and exchange commissions 401-k report.

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Practice Question 9

In a statement of cash flows, the acquisition of land by issuing capital stock:

A. Is not shown at all, since no cash was received or disbursed.
B. Is shown as an investing/financing activity.
C. Is shown in a supplementary schedule as a noncash investing and financing transaction.

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Practice Question 10

If you want to find information about management and director compensation, you should look

A. in the auditor's report.
B. in the MD&A or foot notes.
C. in the proxy statement.

Check AnalystNotes for the correct answer and a detailed explanation.

Practice Question 11

Management's analysis of the past year is found in

A. Form 10-K.
B. the annual report.
C. both of these.

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Practice Question 12

Which of the following ratios, when calculated using interim financial reports, would be least questionable?

A. Receivable Turnover (Net Sales / Average Accounts Receivable)
B. Current Ratio (Current Assets / Current Liabilities)
C. Return on Assets (Net Income / Average Total Assets)

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 User Comments
Posted by roydain:
Are Financial notes audited? Are Proxy Statements audited?
Posted by quean2008:
1. Interim report is in condense form, not subject to full audit and less date than anaual report
2. Accounting method and assumption can be found on footnote while others in MD&A or supplementary schedule
Posted by rethan:
Is this statement correct?
"10-Q (interim report) on a quarterly basis. It is far less detailed than annual financial statements, as it contains unaudited basic financial statements"
I thought 10-Qs had to be audited as they are filed with the SEC
Posted by JoshL1:
No, 10-Q's are not audited. They are "reviewed" by the auditors, which is nowhere near as robust as the audit of the 10-K (the annual year-end financial statements).
Posted by MRSLETS:
What is 10-Q and 10-K?
Posted by reganbaha:
10-Q (interim report)
10-K (the annual year-end financial statements).
Posted by thekobe:
mrslets, take a brief look at the edgar online website so you can take a look to a 10q and a 10k, so you can realize the differences