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Category: Rhetorical Analysis Essay

Subcategory: Accounting

Level: College

Pages: 7

Words: 1925

Class Name

The contemporary business world of today is characterized by high rates of dynamism and competition. This, therefore, brings about the need for business organizations to regularly carry out self-assessment that would inform on the progress or rather a status of the business against its competitors (Fung, Graham & Weil, 2007). There are various approaches that a business organization can employ in doing this. For instance, use of financial reporting which refers to putting together documents and records so as to track and review the amount of money that a business is makings (Ball, 2006). In essence, a business report provides information to the stakeholders thereto as regards the administration and use of funds. This paper shall analyze financial documents of ‘Verizon Communications’ in relation to its financial reporting.
Discuss the disclosure requirement on accounting policies, and identify at least two (2) examples of the most commonly required disclosure. Explain the key ways in which the examples you provided are useful to financial statement users. Analyze Verizon Communications’ disclosure on accounting policies, and give your opinion on whether or not the information is helpful for decision making. Provide a rationale for your response.
Disclosure of accounting policies is to the effect that adoption of any and/or all accounting policies in the bid to prepare and present financial statements for any organization need be disclosed (Fung et al., 2007). This exercise is aimed at ensuring that there is proper comprehension of the company so that those who read the financial information are in a position to make decisions that are informed. The International Financial Reporting Standards’ (IFRS) principle regarding disclosure of financial information is that an entity in this respect must adhere to the laid down laws and that all material facts relating to an accounting period for all registered public companies must be provided (Ball, 2006). Two of the commonly required disclosures include significant accounting policies and contingencies. The former comprises of two major divisions, one which describes the organization, its purpose and its sources of revenue while the second division outlines all major accounting policies (Fung et al., 2007). This disclosure generally includes the methods that are used in the financial, what is considered as cash, the way determination of fair value of investments is done, the kinds of items that are capitalized as fixed assets together with the years they are depreciated over, income tax status and how recognition of grants and contributions as revenue is done. On the other hand, inventory pricing entails a write up that is ‘written down to net realizable value’ (Ball, 2006). This could be item by item or by groups of that are of similar items. According to Fung et al. (2007) it is very important to disclose to readers of financial statements of organizations any change in accounting policy that is deemed to have a material impact. This majorly aids the reader to make decisions that are correctly guided as far as their engagement with the institution is concerned. Inventory pricing would act as a great part on the balance sheet as it is categorized among the largest current asset account (Fung et al., 2007). As observed the value that is placed on ending inventory would be would play a big role when the readers would be considering whether to invest in an organization or loan it money.
Verizon Communications Inc. is a business organization that deals in integrated telecommunications providing wire line voice and data services wireless services, internet services and published directory information (Hoeker, 2008). According to Donovan (2010), the organization provides services for federal government and this involves business phone lines, data services, telecommunications equipment and payphones.
As far as Verizon communication’s disclosure on accounting policies is concerned, there is a record of plant, property and equipment that is done at cost (Hoeker, 2008). It is on record that the items above are often depreciated with the basis being a straight line (Donovan, 2010). There is amortization of leasehold improvements over the shorter of the life estimate of the improvement which is also the time that remains for the said lease to lapse and the calculation is done with consideration from the time the asset was placed for service. Cost and accumulated depreciation are then deducted from the accounts of the plant and a recognition of gains, losses on disposition in relation to income is done at the time of retiring depreciable assets of the company’s wireline and wireless operations (Hoeker, 2008). The organization not only capitalizes and depreciates network software that is bought or created together with the other assets of the plant but also the interest that relates to acquiring or constructing the said network related assets (Hoeker, 2008). The capitalized interest is then reported as a reduction in expenses of interest and depreciated regarding the cost of the network related assets (Donovan, 2010). This information is crucial for decision making because the analysis shows that it constitutes the organization’s full financial information.
Explain the importance of the management discussion and analysis section of an annual report.  Select three (3) items from Verizon’s management and discussion analysis of the annual report that could be useful to potential investors. Provide three (3) specific examples of how the three (3) items you selected could influence a potential investor’s decision to invest in Verizon.
Every General Purpose Federal Financial Report is meant to a have a section that is specifically set aside for the discussion and analysis of the management (Hoeker, 2008). This section has the main purpose of addressing the performance measures of the reporting organization, its financial statements, laws and regulations compliance, systems and controls and the strategies put in place to address issues therein (Shaked & Kempainen, 2009). The discussion in this section has its basis on information that is in the organization’s reports, relevant events, conditions, trends and contingencies that are deemed to have impacts on operations in the future. According to Ball (2006), the importance of this section is that it supplements what is contained in the General Purpose Federation Report. Verizon’s Management Discussion and Analysis of the report for the year 2015 addressed some issues that are important in influencing investors. In this case there shall be three items selected namely; strategy and growth, risk and opportunities and then investments and financing An example for the strategy and growth element includes the offering of creative products like broadband and internet bundles. Pointing out the point on changes in the rates of exchange as a risk to the organizations and the changes that take place tax policies being considered as risk and growth as a result of the emergent demand for Smartphone’s and tablets.
Describe segmented information and explain the way in which companies determine segments. Identify at least three (3) advantages and three (3) disadvantages of segmented financial data. Give your opinion on whether or not the advantages outweigh the disadvantages. Outline the manner in which Verizon segments its financial data. Suggest key actions that Verizon’s management can take to improve the company’s segmented financial data. Provide a rationale for your response.
Segmented information refers to that information of the operating sections of a company that is provided hand in hand with the disclosures of the financial statements (Ball, 2006). A requirement for segmented information is placed on public companies and private ones. The main objective of segmented information is to inform a company’s investors and creditors of the results of finance and the state of essential operating sections of the company (Shaked & Kempainen, 2009). This information is the same that creditors and investors base on while making decisions regarding the company. It describes business activities such as where revenue is earned and expenses incurred.
According to (Ball, 2006), determination of segmentation is based on aggregation of results of two or more segments in terms of their similarity in products, services, processes, customers, methods of distribution and regulatory environment, look at the segments’ revenues, profits, loss and report if any of the above amounts to at least 10% of the whole organization’s assets, reported segments must amount to at least more than 75% of the total revenue and the segments should not be more than ten. The advantages of segmented data are that it brings about transparency in the entity, it makes it easy to identify profitable and non-profitable products of an organization that could be working in varied geographic areas and it influences development of strategies geared towards ensuring profitability in all areas. (Shaked & Kempainen, 2009) provides that the disadvantages to it include; being exposed to data manipulation, it only deals with the present and, therefore, placing much emphasis on short-term numbers and that and it might expose information that could be unpleasant to the investors. A critical assessment of the advantages and disadvantages of segmented reporting reveals that the advantages outweigh the disadvantages because information segmentation would be followed by developing plans to rectify issues that would have been developed. Verizon’s segments are classified as wireless and wireline the former comprising of wireless voice and data services and equipment sales while the latter comprises of broadband video and data, corporate networking solutions, data centre, cloud services, security and managed to network local services, local and long distance voice services (Shaked & Kempainen, 2009). To improve the company’s financial data, Verizon should use the business model in the geographic model in the segmentation of the financial information. This is because the company is a multinational organization, therefore, will be in a position to address the diverse needs of their varied customs from different regions.
Analyze the various types of auditor’s reports, and determine the impact that the auditor’s report has on a company’s ability to obtain financing from a bank. Identify the type of auditor’s report issued on Verizon, and speculate the manner in which you believe banks will perceive Verizon’s auditor’s report.
There are four types of auditor’s reports namely unqualified opinion, qualified opinion, adverse opinion and disclaimer of opinion (Ball, 2006). Fung et al. (2007) provides that unqualified report is an audit report that is issued upon determination by the auditor that the financial records are free from misrepresentations and that they are in accordance with the Generally Accepted Accounting Principles (GAAP), qualified report is issued when the financial records are not maintained in accordance with GAAP but has no misrepresentations that are identified, adverse opinion is an auditor’s report that is issued when the financial records are not maintained in accords with GAAP and there are the same records have gross misrepresentation issued while disclaimer of opinion a report issued when the auditor is not able to complete an accurate audit report caused by issues such as lack of appropriate financial records. Since an auditor’s report is an appraisal the financial report of a given company as well as a presentation of a company’s financial position and future, it is critical in influencing a the company’s ability to obtain a loan from a bank. A bank in its business would not under normal circumstances invest its funds in an organization that does not adhere to accounting principles coupled with lots of misrepresentations in its financial reports. Therefore, following the above analysis on types of audit reports, an organization that would have an audit report that is unqualified would be at the best place to receive the loan.
Verizon’s FiOS Implementation Final Audit Report, June 18, 2015, is a report that is unqualified.
Banks would take this report with a lot of seriousness as it shows the position of the company. The banks would be guided by the report in getting into any engagements with Verizon.
The above discussion shows that Verizon Communications Inc. is a competent organization in the telecommunication industry. It is necessary that the organization is informed on the constant change that the industry is undergoing that the emergence of the use of smart phones and tablets provides Verizon with a great opportunity to do the expansion to the said coming up markets. Additionally, it is clearly put that investors are crucial for an organization’s growth and in this context the importance of disclosure of financial reports has been discussed. Verizon communications are therefore encouraged to adhere to all rules regarding disclosure of financial reports so that their game remains up in the industry for the report users will be making sound decisions that are well guided.
Ball, R. (2006). International Financial Reporting Standards (IFRS): pros and cons for investors. Accounting and business research, 36(sup1), 5-27.
Donovan, S. R. (2010). U.S. Patent No. 7,830,888. Washington, DC: U.S. Patent and Trademark Office.
Fung, A., Graham, M., & Weil, D. (2007). Full disclosure: The perils and promise of transparency. Cambridge University Press.
Hoeker, M. T. (2008). From Carterfone to the iPhone: Consumer Choice in the Wireless Telecommunications Marketplace. CommLaw Conspectus, 17, 187.
Shaked, I., & Kempainen, S. (2009). A review of fairness opinions and proxy statements: 2005-2006. Journal of Applied Finance, 19(1/2), 103.