Businesses are obligated to provide relevant data and information to individuals who are accustomed to examining financial data in order for them to make firm-related decisions (Hume, 2011). The release of such information is known as the full disclosure principle, and it can be found on the company's financial statements, management's discussion and analysis, which is included in a publicly traded company's annual report to press release, quarterly earnings report, and other communication. This article addresses the disclosure need for Verizon Communications accounting rules and highlights at least two instances of the most typically required disclosure. Next, the paper describes segmented information and evaluates the manners in which companies determine the segments. Furthermore, the importance of the management discussion and an annual report analysis will be presented. Last but not least, various types of auditor’s reports will be evaluated alongside the impacts that the auditor’s report has on the ability of a firm to obtain finances from a bank.
Financial statements are meant to convey information regarding the operations of a company, especially to the creditors, investors, and stakeholders. With these said it is essential that all the critical accounting policies that are involved in the presentation and preparation of the financial statements are disclosed so that it can be understood. Tackett (2003) argued that the accounting policies disclosure or any modifications or alterations cannot remedy an inappropriate or wrong treatment of items in the account.
The most commonly required disclosure principles include the fact that accounting policies that are adopted in the presentation and preparation of financial statements which are significant are disclosed (Hume, 2011). Aforementioned is useful to users of financial statements because most of them have a basic knowledge of the policies, which makes it easier for them to understand. Secondly, a fraction of the financial statement should contain the disclosure of such noteworthy accounting policies, and these plans should be disclosed in one place. With the procedures and strategies disclosed in one place, the information is clear and conspicuous to financial statement users. Aforementioned also prevents distraction from useful information regarding the company and improves the reader’s knowledge of understanding and decision making.
The next policy involves the fact that any modification in the policies of accounting that has a material influence in the present time or is reasonably expected to contain a material power in the later periods be disclosed. According to this policy, items in the financial statement that are affected by changes in the policies of accounting which have a material effect in the present period be disclosed to the extent that can be ascertained. The final policy explains that disclosures are not required if the essential accounting assumptions, accrual, consistency and going concern are strictly followed in financial statements. Besides, such facts are expected to be disclosed if primary accounting suppositions are not comprehended. Every disclosure is meant for users to have a clear understanding of a corporation before making any investment decisions. Among the major companies in the United States that follow specific accounting policies is Verizon communication, which ensures that its financial statement preparation and presentations are clear enough for the customers.
Verizon communication’s disclosure of accounting policies involves the fact that a company report is prepared, updated and disclosed annually. This report should include the company’s policies and procedures which govern it lobbying of regulators and legislators, including the statements that are carried out by trade associations on behalf of the company. These disclosures also include both indirect and direct lobbying and grassroots lobbying communications. Verizon also uses a payment list for its direct and grassroots lobbying communications and this consists of the payments amount and the recipient. Regarding these disclosures, I think they are beneficial to decision-makers because it encourages accountability and improves transparency in the utilization of staff time and corporate funds to influence regulation and legislation both indirectly and directly which is in the best interest and concern of the shareholders.
The management discussion and analysis is a section in the annual report of Verizon Communications where investors have access to a detailed discussion concerning the performance of the firm in the recent year. Besides, it includes some of the opportunities and challenges for every significant business entity in the company. Additionally, some forward information is included in this section. This section of the annual report is of great importance because it shows through words and charts the financial performance of the company during the reporting period. It also includes sections that reveal the full details of the consolidated financial position of the organization, the dangers from forces in the marketplace and other factors that may affect the future of the company. Moreover, this section includes a statement concerning the accounting policies of the company and recent accounting statements that may have a blow or an influence on the business. Berger and Bouwman (2016) postulated that the management discussion and analysis offers caution to the investors concerning factors that may probably impact all the forward-looking financial statements.
Each of these items has its way of influencing an investor’s decision making. The fact that this section explains through charts and words, the financial performance of the company can have a positive influence on an investor’s decision because of its transparency. This format makes the information more understandable compared to other businesses and assures the investor of always being able to understand what happens in every period. Secondly, this section shows the full details of the company, including the risk from marketplace forces. Investors who are scared of losing may decide not to invest in the company or withdraw. With investors being given caution regarding factors that have the possibility of impacting forward-looking statements, this might increase their interest in the business.
Segment information involves the reporting of a company’s operating segments in disclosures that accompany its financial statements. This information is required for publicly held entities, but not actualities that are privately owned. The information is useful to investors and creditors because it provides financial results and the company’s position regarding the most essential operating units. This information can also be used for decision making relating to the company. There exist some segments, and each has its ways of being determined. For example, an operating division is defined using four decision steps. These steps involve identifying the ‘chief operating decision maker’ (CODM), which assesses the operating outcomes and allocates resources to segments of an entity. Besides, another way of determining segments is by identifying if that component can incur expenses and generate revenue from its business operations. Operating segments can also be defined by verifying if the operating outcomes of a particular element are regularly reviewed by the CODM as a foundation for performance for assessment and resource allocation. Finally, when determining segments, available financial information has to be discrete.
The advantages of financial data involve the fact that it highlights performance in diverse parts of the company, which allow users of the data to forecast the future profitability of the business, especially for segments involved in varied activities. Segmented financial data also help management to analyze the financial process. However, certain disadvantages are associated with segmented financial data. Since segments are also required to be reported externally, this can be a detriment to a company. Also, certain costs can be imposed on an organization due to the provision of segmented financial data such as encouraging further entrants into an industry. Another disadvantage is based on the fact that management may be less likely to take a business risk in particular segments when the segment results are available, and if costs are imposed on the organization. I will conclude that the advantages of financial data outweigh the disadvantages because not only is the data that is useful to external users but it is also of great importance to management in analyzing the financial process of the company.
In segmenting its financial data, Verizon Communications has a domestic wireless and wireline which is used as its two reportable segments. These segments are measured based on segmented operating income which is dependable with the CODM assessment of segment performance. Involved in segmenting financial data are also segment earnings before taxes, amortization, depreciation and interest rate that is a non-GAAP measure which does not appear to be an option to operating income as a determinant of operating performance. According to the management of Verizon, this is a useful measure to clients and investors and other users of financial data with regards to assessing the operating profitability on a larger variable cost base. This is because it includes amortization and downgrading expenses that are primarily connected to the capital expenditure and acquisitions that took place in previous years, along with evaluating operating performance about the competitors of Verizon. For management to advance the company’s segmented financial data, one of the ways will involve being consistent with management’s operating structure, regarding the company’s segment disclosure. This objective helps users of financial data to ‘see through the eyes of management’ a company’s business. Management can also view and highlight risks and opportunities that are important. This will better place financial data users in a position to understand its performance and to make better-informed judgments about Verizon as a whole.
There are various types of auditor’s financial reports that are completed by independent accounting professionals and represent an appraisal of the complete financial status of the business. Harrison and Harrison (2014) suggested that the assets and liabilities of a company are covered in the auditor’s report which presents the assessment of the auditor regarding the current and the future financial position of the firm. There exist four types of audit reports that consist of a disclaimer opinion, unqualified opinion, qualified opinion and adverse opinion. A disclaimer opinion is a situation whereby an auditor is not in a position to complete an audit report that is accurate due to different reasons. In this case, the audit issues cannot be determined. A qualified opinion audit report contains information that shows the financial records of the firm that has no misrepresentations and has not been maintained per GAAP. An unqualified opinion is issued when the auditor determines that each of the provided financial records is of misrepresentation. It shows proof of how the financial records have been well maintained according to the GAAP. Adverse opinion audit report contains the worst type of results since they do not conform to the GAAP.
An auditor’s report has several impacts in every aspect of business including; credit professionals are making decisions to grant trade credit, an investor deciding whether to buy or sell securities and even a banker when it comes to approving a loan (Arens, Elder, & Beasley, 2017). For a company deciding to obtain financing from a bank, an auditor’s report can have specific impacts such as the financial statements submitted by the business along with its financing application not being reliable. An example here may involve the financial statement overstating annual earnings and current assets, but omitting central liabilities. Moreover, some companies may successfully pull through the process of obtaining financial assistance form a bank, but due to its unreliable auditor’s report, the company finds it difficult to pay the bank which results in the financing agreement being written off. The management at Verizon recently assessed the effectiveness of the internal control of the company over financial reporting and the results presents an adequate internal control. Also, Verizon uses an independent auditor’s report. These reports are audited by an independent registered public accounting firm called Ernst & Young LLP. With these said I believe that most banks will perceive Verizon Communications auditor’s report since the company maintains all material impacts and the fact that the company has an efficient internal control over its financial reporting.
In this modern generation, many companies segment their information which comprises of its financial data (Arens, Elder, & Beasley, 2017). This is useful to external users, and the information is also available for the activities and performance of the segments which are required to be reviewed periodically by company’s management for decision making.
References
Arens, A. A., Elder, R. J., & Beasley, M. S. (2017). Auditing and assurance services: An integrated approach.
Berger, A. N., & Bouwman, C. H. (2016). Understanding Financial Statements. Bank Liquidity Creation and Financial Crises, 19-27. doi:10.1016/b978-0-12-800233-9.00003-7
Harrison, W. T., & Harrison, W. T. (2014). Financial accounting: International financial reporting standards. Harlow: Pearson Education.
Hume, S. (2011). Financial Reporting and Disclosure Risk Management. Enterprise Risk Management, 369-384. doi:10.1002/9781118267080.ch21
Tackett, A. (2003). A New Brand World: 8 Principles for Achieving Brand Leadership in the 21st Century20031Scott Bedbury, with Stephen Fenichell. A New Brand World: 8 Principles for Achieving Brand Leadership in the 21st Century. Viking, 220 pp., ISBN: 0‐670‐03076‐7 $24.95. Journal of Consumer Marketing, 20(3), 266-268. doi:10.1108/07363760310472281
