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Annual Reports

Annual Reports. The Annual Report. A communications vehicle A sophisticated marketing tool Used to impart a particular organizational image. The Annual Report.

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Annual Reports

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  1. Annual Reports

  2. The Annual Report • A communications vehicle • A sophisticated marketing tool • Used to impart a particular organizational image

  3. The Annual Report • Anthony Hopwood, an accounting professor and researcher asserts that the corporate annual report is a largely unresearched document, subject to little systematic investigation.

  4. The Annual Report • He argues that it has become a highly sophisticated product of the corporate design environment, the main purpose of which is to proactively construct a particular visibility and meaning rather than revealing “what was there.”

  5. 2002 Report to the Nation Occupational Fraud and Abuse Association of Certified Fraud Examiners

  6. Occupational Fraud • “The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” Association of Certified Fraud Examiners 2002 Report to the Nation

  7. Occupational Fraud • Occupational fraud schemes can be • as simple as pilferage of company supplies or • as complex as sophisticated financial statement frauds. Association of Certified Fraud Examiners 2002 Report to the Nation

  8. Occupational Fraud • All have four elements: • Is clandestine • Violates the perpetrator’s fiduciary duties to the victim organization • Is committed for the purpose of direct or indirect financial benefit to the perpetrator. Association of Certified Fraud Examiners 2002 Report to the Nation

  9. Occupational Fraud • Costs the employing organization assets, revenue, or reserves. Association of Certified Fraud Examiners 2002 Report to the Nation

  10. Occupational Fraud • Study covers 663 occupational fraud cases that caused over $7 billion in losses. • An estimate of 6% of revenues will be lost in 2002 to occupational fraud.

  11. Occupational Fraud

  12. Categories of Fraud • Misappropriation of assets • Account for 80% of frauds • Cash is the targeted asset 90$ of the time. • Corruption Schemes • Account for 13% of frauds • Cause over $500,000 in losses on average.

  13. Categories of Fraud • Fraudulent statements • The most costly form of occupational fraud • Median losses of $4.25 million per scheme

  14. Methods of Fraud

  15. Duration of Fraud

  16. Position of Perpetrator

  17. Gender of Perpetrator

  18. How did they succeed? • Insufficient controls (49.2%) • Controls ignored (39.9%) • Couldn’t have been prevented (10.8%) • None of the above (3.1%)

  19. Now . . . Back to Annual Reports First . . . What are they? Why do we need them?

  20. What are they? • It depends somewhat on how you define “annual report!” • Annual report to SEC (Form 10-K) • Annual report to shareholders

  21. Annual Report to the SEC Form 10-K

  22. Form 10-K . . . • Who must file? • Companies with more than $10 million in assets • Whose securities are held by more than 500 owners

  23. Form 10-K . . . • Available to the public via the EDGAR database (www.sec.gov). • Almost a “legalistic” document • Difficult to read • Extremely long

  24. Form 10-K - Contents

  25. Form 10-K (EDGARSCAN)

  26. Form 10-K (EDGARSCAN)

  27. Form 10-K (EDGARSCAN)

  28. So . . . Does the 10-K have any real value to the average investor?

  29. Annual Report to the Shareholders

  30. Two Schools of Thought • The annual report is a thing of the past. It is a relic and nobody bothers to read it anymore. • The annual report, while no longer occupying the same level of importance it once did, is nevertheless an important document that should be studied by investors.

  31. Picture Every Word Every Even the Layout Itself . . . Management's Is Story!

  32. Annual Report Its Cover Must Demand Open me! Read me!

  33. Annual Report • Required by the SEC. • Required by stock exchange listing. • “Required” by public demand.

  34. Annual Report • The first annual report was said to be issued by Baltimore Gas & Electric in 1823 • One-page • Handwritten by the Corporate Secretary

  35. Required Contents • Report of management • Auditors’ report • Management discussion • Financial statements and notes • Selected financial data

  36. Optional Contents . . . • Financial highlights • Letter to stockholders • Corporate message • Board of directors and management • Stockholder information

  37. Typical Contents . . . • Impressive front cover • Colored photographs on shiny paper • Dazzling graphics demonstrating the company’s success • Letter to shareholders with positive spin • Four financial statements Understanding the Corporate Annual Report Lyn Fraser and Aileen Ormiston

  38. Typical Contents . . . • Notes to the financial statements • Report of independent auditors • Management’s discussion and analysis • Five-year summary of selected financial data • Market data Understanding the Corporate Annual Report Lyn Fraser and Aileen Ormiston

  39. So, how are we doing?

  40. How about something more current!

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