Topic 8 DQ 1 and 2

Topic 8 DQ 1
Reference Chapter 17, Question 9 in the textbook: "One argument given for the statement of cash flows is that it is
less subject to manipulation than the income statement." Using a real company's statement of cash flow report,
discuss whether you agree with this view. Use the information from the real company's financial report(s) to
support your points. Do not choose a company that has already been reported on by one of your classmates.
The statement of cash flows is less subject to manipulation than the income statement but is still at risk due to
the multiple ways if inflating/deflating the cash inflows and outflows. Companies can still make calculated
adjustments on the income statement in a variety of ways such as off-balance sheet items, non-recurring
expenses, accelerating/delaying expenses, notable per-mergers and revenues (Young, Cohen & Bens, 2019). For
example, based off Exelon’s 10-K Form (2019), non-operating cash from securities trading, approximately $2,133 M
has nothing to do with the business core operations.
On the other hand companies can manipulate their cash flow statements by bulking up their outstanding payments,
accounts payable, or including cash raised from operations that are not related to the core business of the
company. I agree that there are more reasons for income statement manipulation compared to cash flow
statement since line items on the cash flow statement are found after the income statement and balance sheet,
for example, operating cash flow. However, cash flow statement is much cleaner condition of financial strength of
the business due to some items on the income statement that have leverage to be manipulated such as sales made
on credit are recorded immediately, even though cash from the sale has not been received for a certain period of
time. When evaluating the firm it’s important to assess whether the firm is able to cover its operating costs which
is seen on the cash flow statement.
References
Google 10-K Form (2017). Retrieved from: https://abc.xyz/investor/static/pdf/20180204_alphabet_10K.pdf?

cache=11336e3
Young, S. D., Cohen, J., & Bens, D. A. (2019). Corporate financial reporting and analysis: A global perspective
(4thed.). Hoboken, NJ: Wiley. Retrieved from https://www.gcumedia.com/digital- resources/wiley-and-
sons/2018/corporate-financial-reporting-and- analysis_a-global-perspective_4e.php
Topic 8 DQ 2
The principles regarding trading securities and available-for-sale securities change as of 12/15/19. Access the
"Recently Complete Projects" topic material. Search the "Recently Completed Projects" to locate the summary on
the "Fair Value Measurement" or another relevant course topic. Summarize the changes and how they might affect
a company's financial reporting. As a non-accountant, explain why it is important to be aware of these types of
updates.
According to Foster and Upton (2005), the changes of the Fair Value Measurement from Financial
Accounting Standards Board are significant because it provides a framework to determine fair value for
financial reporting. The definition “The amount at which that asset (or liability) could be bought (or
incurred) or sold (or settled) in a current transaction between willing parties, that is other than in a
forced or liquidation sale” (p. 2). The significance of the changes to that concept statement implies the
fair approach to what is governed the facility – operation of the transaction, expectation, and
measurement of the value technique. A Common example of a change that might affect a company’s
financial report must establish how much an asset is expected to sell for or how much it would cost to
sell a liability depending on the measurement date.
As a non-accountant it’s important to be aware of these updates because it could affect as estimate of
the future cash flow of a company at different times, the price, market imperfections – factors that go
into the asset or liabilities condition(s) (Young & Upton, 2001). As estimate of fair value measurement
provides recognition of an observable market to obtain information about similar assets or liabilities (i.e.
real estate, automobiles, etc.). This would take into account valuation techniques to assess estimates of
values, future revenues, expenses, etc. that would be useful for non-accountants.
Thank you for sharing your ideologize with the group. From review of your statements, it seems as
though you are stating fair value allows for a precise market and pricing judgment/estimates and that
that being knowledgeable changes is vital for objective values. It would seem imperative that managers
know the adjusted return on investment based off fixed assets – depreciation to conduct operational
analysis. Although managers prefer to make capital budgeting decisions based on quantifiable data
nonfinancial factors may outweigh financial factors. An example is maintaining a reputation as the
industry leader may require investing in long-term assets, even though the investment does not meet
the minimum required rate of return.
References
Foster, J., Upton, W. (2001). Understanding the issues – measuring fair value. Financial Accounting
Standards Board, 3(1), 1-6. Retrieved from:
https://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1218220179034.

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Google 10-K Form (2017). Retrieved from: https://abc.xyz/investor/static/pdf/20180204_alphabet_10K.pdf?

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