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| 1. A report attached to the financial statements that explains the accountant's level of service provided and, in some cases, includes an opinion statement giving the accuontant's opinion regarding the financial statements as a whole. |
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| 2. A level of service in which the accountant simply compiles and reports a company's financial statement data without rendering an opinion on the content. |
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| 3. A level of service in which the accountant does not express an opinion on the financial statements but does provide a limited assurance that nothing has come to the accountant's attention to suggest that the financial statements are materially misstated. |
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| 4. A level of service in which an accountant performs enough work to be able to issue a report expressing a professional opinion abut whether the company's financial statements fairly represent the financial condition of the company |
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| 5. Notes to the financial statements |
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| 5. The additional details that are disclosed to explain or amplify the information presented in the financial statements |
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| 6. In the context of financial accounting, the provision of sufficient detail regarding transactions to enable a prudent investor to understand the economic effect of those transactions on the company's financial statements. |
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| 7. Selected financial Data |
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| 7. Financial data provided in a convenient format to highlight certain significant trends in the company's financial condition and results of operations. |
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| 1. Describe info typically provided by the accountant's report |
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| 1. The accountant's report explains the accountant's lever of service provided in the preparation of a company's financial statements and any opinion statement regarding those financial statements. The accountant's report provides the financial statement user with a basis for making a decision about how much reliance to place on the financial statement. |
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| 2. Describe the required contents of a publicly traded company's annual auditing report, as mandated by the Sarbanes-Oxley Act of 2002. |
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2. The Sarbanes-Oxley Act of 2002 mandates publicly traded companies to include the following in the annual auditing report:
(a). mgmt's responsibility for establishing and maintaining internal controls over its financial reporting
(b). mgmt's evaluation of the effectiveness of such internal controls
(c). An opinion from outside accountants on mgmt's evaluation of its internal controls
(d). an evaluation of the accounting principles used
e. an evaluation of significant estimates made by mgmt
(f). an evaluation of overall financial statement presentation |
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3. Explain the indications of the following accountant opinions regarding the accuracy of a company's financial statements:
(a). unqualified opinion
(b). qualified opinion
(c). adverse opinion
(d). disclaimer of opinion |
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Definition
3. Accountant opinions regarding the accuracy of a copany's financial statements include:
(a). unqualified opinion - the financial statements as a whole present a fair representation of the company's financial position and results of operations for the period audited
(b). qualified opinion - makes a limited exception to the conclusion that the financal statements are a fair representation of the company's financial position and results of operations for the period audited
(c). adverse opinion = sufficient evidence was obtained to perform the equired audit, and that evidence shows that the financia statements do not fairly present the company's financial position and results of operations
(d). disclaimer of opinion = accountant has not be able to obtain sufficient evidence to express an opinion. The disclaimer must include the reasons for which no opinion was given. |
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4. Decribe info contained in the following notes to financial statements:
(a). nature of operations
(b). significant accounting policies
(c) long-term debt and other commitments
(d). contingencies
(e). financial info by business segment
(f). other |
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Definition
4. The following info is contained in the notes to the financial statements:
(a). nature of operations -contains info about the co's industry, type of business products and svcs offered, scope of the operations, and size, and any individual entities that are part of the company
(b). significant accounting policies -Id's the acctg policies and procedures the co has adopted. Fiancial stmt users can bake more informed comparisons of the financial position and results of differetn companies within the same industry
(c). long-term debt and other commitments -Id's the type, maturity, and interest rates of the long-term debt securities issued by the co. Allows fin statement users to assess the co's future cash needs and its ability to meet them, and to determine the probable efffect on income of interest rate changes.
(d) contingencies - Discloses possible exposures to loss and liability.
(e). financial info by business segment-highlights the co's risks and returns and shows the fin position and performance of each business segment
(f). other explanations- provides additional info to ensure full disclosure and provide info that users of fin stmts need to make informed biz decisions. |
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| 5. Describe why the following might be significant to fin stmnt users:(a). consolidation of results of subsidiaries (b) valuation of inventories(c)recognition of revenue(d)depreciation of long-term assets(e)recording of income taxes(f)trtmt of emp benefit |
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Definition
5. The following accounting methods and procedures are significant to disclose to financial statement users:
(a). consolidation of results of subsidiaries = significant assets and liabilities could be omitted from financial stmts, possibly afffecting risk mgmt programs
(b). valuation of inventories = method used affects the decision regarding amts of ins cvg estimated to cover inventories and the cost of goods sold expense, ultimately affecting the net income figure
(c). recognition of revenue - method used can be important consideration in adjusting a claim that arises under business income coverage
(d). depreciation of long-term assets= depreciation affects the balance sheet, the income statement, and ultimately the net income
(e). recording of income taxes = income taxes affect the co's net income, and it is important to understand how aggressively the company interprets the tax code when calculating its income taxes
(f). treatment of employee benefit plans - unfunde dpension costs can represent a significant future liability of the co.
(g). calculation of earnings per share: because earnings per share is used by the investment community to value stock, it is important to understand how EPS is calculated |
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| 6. Id factors that a co might use to group buisiness and create business segments |
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6. A co might create business segments using the following factors:
1. nature of the products and svcs
2. production processes
3. types of customers for the products and svcs
4. methods of distributing the products or providing the svcs
5. regulatory environment
6. geographical considerations, such as:
-economic and political conditions
-proximity of operations
-special risks assoc with operations in a particular area
-underlying currency risks
-regulations |
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| 7. Explain the usefulness of a co annual report to an insurance professional |
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| 7. A co. annual report is useful to an ins professional because it provides info about the co's biz purpose and philosophy, its financial results, and its direction for the future. This info provides background for making underwriting decisions. |
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| 8. describe the annual report sections required by the U.S. Securities and Exchange Commission (SEC) |
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8. The following sectins of th eannual report are rquired by the the U.S. Securities and Exchange Commission (SEC):
(1). financial statments and notes-current figures along with descirptions of the accounting methods, procedures, and estimates that a particular company uses
(2). Auditors report = report that expresses an accountant's professional opinion about whether the financial statements fairly represent the financial condition of the company
(3). report of management = acknowledges mgmt's responsibility for the quality and intgrity of the company's financial stmts and the adequacy and effictiveness of the internal controls over financial reporting; is signed by the chairman of the board and chief financial officer
(4). Managements discussion and analysis of results of operations and financial condition= focuses on explaining the co's operating results and condition, and provides insight into the matiral opportunities, challenges, and risks the company faces.
(5). Selected financial data- highlights certain significant trends in the co's financial condition and results of operations |
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| 9. ID the three areas of disclosure regarding the SEC's interpretive guidelines for MD&A prompted by Sarbanes-Oxley |
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9. The three areas of disclosure regarding the SEC's interpretive guidelines for MD&A prompted by Sarbanes-Oxley are:
1. Liquidity and capital resources
2. Certain trading activities involving non-exchange traded contracts accounted for as fair market value
3. Relationships and transactions with persons or entities that derive benefits from non-independent relationships with the company or the company's related parties. |
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| 10. Describe the info contained in the additional information section of a co's annual report |
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10. Info contained in the additional information section of a co's annual report include:
1. Financial highlights - contains a brief summary of the company's results for the year
2. letter to shareholder - provides a review and analysis of the significant events of theyear and typically addresses any issues and successes the company experienced.
3. Corporate message: explains the co's mission, lines of business, corporate culture, and strategic direction |
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| 11. Id the SEC financial filings required of all publicly traded companies. |
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| 11. SEC financial filings required of all publicly traded companies include quarterly and annual financial info and notice of any potential material events that might affect the co's financial condition. |
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| 12. Describe the filing forms commonly accessed by the users of financial stmts through the SEC's Electronic Data Gathering Analysis and Retrieval (EDGAR) systems |
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12. the filing forms commonly accessed by the users of financial stmts through the SEC's Electronic Data Gathering Analysis and Retrieval (EDGAR) systems are:
1. Form 10-K An annual report, similar to a co's own annual report, containing more detailed info about the co's business, finances, and mgmt
2. Form 10-Q A quarterly report filed for each of the first three quarters of the fiscal year containing unaudited financial statements, an MD&A for the quarter, and a list of material events that have occurred within the co during the prior 3 months
3. Form 8-K A current report filed within four days of a triggering event that announces major events that shareholders should know about |
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| 13. List the events that trigger an 8-K filing with the SEC |
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13. The events that trigger an 8-K filing with the SEC:
1. material defninitive agreements entered into or terminated that are not in the ordinary course of the company's business
2. creation of a direct financial obligation under an off balance sheet arrangement
3. Change of independent auditor certifying the financial statements
4. Departure or election of directors and departure or appointment of principal officers |
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| 14. Explain why the info provided by rating agencies is important to a company |
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| 14. The ratings provided by rating agencies are important to a co beacuase they affect the perceived risk incorporated into interest rates that apply to bonds issued by and loans made to companies. |
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| 15. Describe two types of ratings issued by rating agencies and the typical users of these ratings. |
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15. Two types of ratings issued by rating agencies and the typical users of these ratings.
1. Claims-paying and/or financial strength ratings = assess an insurer's ability to meet its financial obligations to policyholders
2. credit ratings: assess a co's prospects for replaying its debts
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Customers usually focus n claims-paying ratings, creditors focus on debt rtings and investors use both ratings. |
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| 16. ID the quantitative and qualitative financial factors rating agencies use to develop their ratings. |
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16. Quantitative financial factors used by rating agencies to develop their ratings include profit margins, financial leverage, liquidity, cash flows, and capital and surplus ratios.
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Qualitative financial factors used by rating agencies to develop their ratings include underwriting cycle, competitive environment, regulatory and political factors, soundness of reinsurance, adequacy of reserves, quality of invested assets, and mgmt experience and accomplishments. |
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