Writing Homework Help

Identify key accounting choices adopted by the firm that may affect the interpretation of accounting numbers. Are there large off-balance sheet transactions? Subsidiaries over which the company has control that are not consolidated? Does the company use any financial instruments? Are there contingencies that may affect earnings in the near future? Is revenue being recognized when earned? Is the firm being conservative with respect to its allowance (are there any recent trends in unpayables)? Is the company using LIFO for its inventory?

The cases discussed from lectures 2 to 6 provide good examples of readjustments due to special assumptions. For example, the allowance may be too low (check for write-off, large increases in receivables or whether the allowance is keeping up with revenue). Or, some parts of the business are currently not consolidated (i.e., using the equity method) but are sufficiently strategic that they should be consolidated. There could be some ongoing litigation that is not yet incorporated as a liability, etc.

Sometimes you may find an item that is large and slightly odd, but you do not know whether it is fairly accounting for or may indicate a larger problem (e.g., Enron’s reliance on partnerships before the crash). While you may not quantitatively measure their impact, you should flag these as accounting risk areas.