Q1 (a): Disclosure Requirement on Accounting Policies
Disclosure is primarily the act of sharing to the public all appropriate information about the company, which may influence an investment decision. The disclosures usually form part of the financial statements. Any amendment of change in the accounting policies that have material effects is also disclosed. Besides, the company reveals the degree of the effect caused by the changes in the financial statements. The amendments of accounting policies that have no material impact on the financial statements for the current period, but likely to have effects in later stages. The fact of such changes or amendments must be disclosed accordingly at the time in which the company adopts the change (Robinson, 2009).
(b): Two Common Required Disclosures and Their Significance to Financial Statement Users
Some of the most commonly required disclosures are contingencies and leases policies of a company. Contingencies refers to future events or circumstance that are possible but the company of business entity cannot predict them with certainty. Such events are likely to cause accidental expenses or unforeseeable losses to a business. The most common contingencies in business companies are potential litigation and the fact that the business entity is subject to audit by the government agencies. The disclosure is required for certain contingencies, which may not be accrued for in the current period of financial statements. For instance, if the government gives funding to an organization, there are chances that the government agency might be tasked to carry out an audit with the aim of determining that particular costs are disallowed. Despite this possibility not requiring one to record a liability for any potential disallowed costs, most of the auditors usually recommend one to disclose the change in the footnotes of financial statements. On the other hand, a lease entails a contract, whereby one party conveys property, land, services among others, to another for a specified period, often in return for a particular payment. Information about leases should be disclosed in a note describing any leasing arrangements as well as listing operating leases separately from capital leases. Other essential information that should be noted include the details of the leases that are with related parties; information about lease term and the monthly payment of all leases at the end of the year as well as the indication of the subleases that make rental payment business entity in question. Besides, the lease should note a schedule of the annual rental payments due for the next five years and the total amount after that as well as the amount of rent expense and rental income that is recognized in the current year.
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(c) Verizon Communications' Disclosure of Accounting Policies
When the 2016 financial report is properly analyzed, it is established that Verizon Communications' disclosure on accounting policies is detailed and comprehensive, covering all primary elements of disclosure requirements. For instance, on page thirteen of the 2016 annual report, the company highlights depreciation and amortization expenses. The company notifies the readers that there was a decrease in depreciation and amortization expense that year majorly because of a decrease in net depreciable assets at the wireline segment of the company. The report goes ahead to disclose the accounting policies of the company regarding inventory pricing, valuation of investments, treatment of retirement benefits, recognition of profit on long-term contracts and valuation of fixed assets among other disclosure requirements.
This disclosure the company's information is vital for potential investors in making informed capital decisions of whether or not to invest in the business. The disclosure also lowers the cost of capital in the company by shedding more light on the financial standing of the business. Besides, the comprehensive and accurate disclosure of information reduces the chances of conflicts of interest in major firms, which could have arisen because of the misunderstanding or misinformation.
Q2: Management Discussion and Analysis in Annual Report
(a) Importance of the management discussion and analysis section of an annual report
This section of the report provides an overview of operations of the previous year and how the business performed financially. The management discussion also outlines future goals and improved approaches to new projects for the upcoming year. Besides, this section is essential for investors and analysts who want to review the management performance and financial fundamentals of a company. In this section, the management of a business can explain how the products and services of a firm are rated in the market and ways of growing sales by either acquiring a larger market share or introducing new products.
(b) Verizon Communications' Management and Discussion Analysis of the Annual Report: Items Useful For Potential Investors
The 2016 annual report of Verizon Communications highlights different items in the management discussion and analyzing section such as data center sale, IoT telematics, and capital expenditures and investments. According to this report, on July 30th, 2016, the company entered into a definitive agreement to obtain Fleetmatics Group PLC, one of the world's leading provider of fleet and elegant mobile workforce management solutions. The report indicates that this agreement enabled Verizon to acquire Fleetmatics for $60 per share in cash. According to the report, the company signed a definitive agreement with Equinix, Inc on December 6th, 2016 under which Verizon was going to sell twenty-four customer-facing data center sites in Latin America and the United States for over $3.6 billion. According to the agreement, the sale was not going to affect the data center services of Verizon delivered from twenty-seven sites in Canada, Asia-Pacific, and Europe. In addition, the section highlights the steps made in investing in the wireless network, high-speed fiber among other advanced technologies to position the firm at the center for growth and development for the future.
The three items that have been identified in the 2016 annual report can influence investors in different ways to invest in Verizon communications. For instance, they indicate that the company is growing because of its ability to sign new deals with the purpose of expanding its operation and acquiring even a broader market. In addition, appropriate the appropriate investment strategies that aim to improve the company's connectivity boost the morale among the investors. The three items give an idea of how well the company is doing the business. The trust that Fleetmatic Group PLC, Equinix Inc among other companies that have entered partnership with Verizon also builds the necessary confidence in investors,
Q3: Segmented Information
(a)Description of Segmented Information and Determination of Segments in a Company
Segmented information is the financial reporting in which the company discloses its information by specific industry segments. For instance, an organization can report information about its income, depreciation, assets, and capital expenditures for each of five sectors such as mining, transportation, oil and gas, land, and entertainment. Segment reporting is essential because it provides the public and stockholders with comprehensive and detailed financial data. Segment reporting show, which departments of the business are performing to the expectations as well as those that are not.
(b) Advantages and Disadvantages of Segmented Financial Data
Advantages
Segmented information improves transparency in large businesses. This method of reporting is vital for companies, which operate in different geographic areas or categories. In such circumstances, the segmented information reveals areas that are profitable as well those that are making losses.
This method of reporting contains improved context, thus allowing stakeholders to get detailed information about fluctuations, earnings, and losses among other details. This precise information enables stakeholders to determine whether the numbers are sustainable or not.
The segmented report is simple and easy to understand because it contains clear financial information from different categories.
Disadvantages
Segmented financial data places much focus on the present financial situation, rather than focusing on long-term goals.
There are high chances of data manipulation, whereby managers can group together different businesses with particular business models with the purpose of sending the desired message to stakeholders.
It is difficult to separate items such as property taxes, which is a shared expense among all sectors, especially where all or several categories of the business share the same building.
An appropriate analysis reveals that the advantage of segmented financial data outweighs the disadvantages in many aspects. Segmented financial data is vital for large firms because of the high level of accuracy and comprehensiveness of information it provides to the public and stakeholders.
(c) Segmented Financial Data at Verizon
According to the 2016 annual report, Verizon Communications has segmented its financial information into two reportable segments are consisting of wireline and wireless. The company measures and evaluates the reportable segments based on the segment operating income. The company can improve its segmented financial data by reporting separately for different geographical areas. By using this category, the report will reveal the manner of operations in different countries or regions.
Q4: Audit reports
(a)Types of Audit Reports
There are four main types of audit reports, which include unqualified opinion, qualified opinion, adverse opinion, and disclaimer of opinion.
The unqualified opinion is issued once the auditor has verified that all the financial records are free of any misrepresentation and complies with the generally accepted accounting principles (GAAP) standards.
The qualified opinion is also devoid of any misrepresentations, but the records are maintained following generally accepted accounting principles.
The adverse opinion is an indication that the financial records of the firm do not comply with the GAAP standards. Besides, there is a gross misrepresentation in the business. The adverse report is the worst report that an auditor can issue a business.
The disclaimer opinion is issued to a company when an auditor cannot complete an accurate audit report since he or she was unable to obtain the required explanation or information.
Companies should maintain strive to maintain unqualified opinion, a clean report that increases the chances of getting financing from banks (Pizzini and Ziegenfuss, 2014). Businesses with adverse and disclaimer opinion have low chances of getting financial support from banks and other financial institutions.
(b) Verizon Communications Audit Report
The 2016 auditor's report issued Verizon communications is unqualified opinion. The report is detailed, covering all required information. There are no incidences of misrepresentation in the report, and the firm complied with generally accepted accounting principles. The financial report of Verizon increases its chances of getting financing from banks because any financial institution is assured of getting their funds back within the stipulated period.
References
Pizzini, M., Lin, S., and Ziegenfuss, D. E. (2014). The impact of internal audit function quality and contribution on audit delay. Auditing a Journal of Practice & Theory , 34 (1), 25-58.
Robinson, T. R. (2009). International Financial Statement Analysis . Hoboken, N.J.: Wiley.
