Cpcu 540 Chapter 1

Front 1

Goals of corporate finance & accounting.

Back 1

1. Maximize shareholder wealth
2. Provide transparency in financial reporting
3. Conduct financial operations in an ethical manner.

Wealth, transparency & ethics.

Front 2

Maximizing profits may cause several problems.

Back 2

1. Focusing on current profits to the detriment of lon-term profitability.
2. Not accounting for all levels of risk associated with different profit scenarios.
3. Electing account treatments that make financial statements less useful to potential investors.

Front 3

Sarbanes-Oxley Act of 2002.

Back 3

A federal statutory law governing corporate directors in the areas of investor protection, internal controls, and penalties, both civil and criminal.

The purpose is to protect investors by improving accuracy and reliability of corporate disclosures.

Front 4

Sarbanes-Oxley's specific requirements.

Back 4

1. Signing officers have viewed the report.
2. Report contains no untrue statement or ommission of material fact.
3. Report fairly represents corporations financial condition.
4. Evaluated effectiveness of internal controls 90 days prior to the report.

Front 5

Was the behavior or decision ethical?

Back 5

1. Fall within corporate code of ethics?
2. Would I want it reported in the newspaper?
3. Would my Mom approve of my decision?

Front 6

Corporate finance activities.

Back 6

1. Working capital management
2. Capital structure management
3. Capital budgeting
4. Accounting

Front 7

The CFO manages who?

Back 7

Treasurer and Controller

Front 8

Working Capital

Back 8

Current assets - current liabilities

Used to determine a company's ability to finance immediate operations. (to buy inventory, finance growth & obtain credit)

Front 9

Capital Structure

Back 9

A corporation's mix of long-term debt and equity

Front 10

Capital Budgeting

Back 10

The planning and managing of a corporations long-term investments.

Front 11

Accounting

Back 11

Financial accounting, taxation & financial reporting

Front 12

GAAP - Generally Accepted Accounting Principles

Back 12

Common set of accounting standards and procedures.

Front 13

GAAP concepts and principles

Back 13

1. Going concern
2. Cost principle
3. Revenue regonition principle
4. Matching principle
5. Accrual versus cash based accounting
6. Materiality principle
7. Consistency principle
8. Conservatism principle

Front 14

Going concern concept

Back 14

Accounting assumption that business will continue to operate indefinately.

Front 15

Cost principle

Back 15

Recording assets at their purchase or production price.

Front 16

Revenue recognition principle

Back 16

Revenues recognized and recorded at the time services rendered or good are sold.

Front 17

Matching principle

Back 17

Expenses incurred in generating revenues to be matched against those revenues.

Front 18

Accrual versus cash based accounting

Back 18

Accrual-Revenues and expenses are recorded as they are incurred.

Cash based-Transactions are recorded only as cash is received or paid.

Front 19

Materiality principle

Back 19

Ok to ignore GAAP when recording items that are not material if to do so is less expensive or more convenient.

Front 20

Consistency principle

Back 20

Requires an organization to use the same accounting principles and reporting practices in every accounting period.

Front 21

Conservatism princple

Back 21

Requires transactions to be recorded in a manner such that assets and earnings are not overstated.

Front 22

IFRS

Back 22

International financial reporting standards

Front 23

GAAP & IFRS

Back 23

Two most globally recognized accounting standards

Front 24

SAP - Statutory accounting principles

Back 24

The accounting principles and practices that are prescribed or permitted by an insurance domicillary state and that insurers must follow.

SAP is based on GAAP

Front 25

FASB - Financial Accounting Standards Board

Back 25

Determines minimum required content for financial statements of US public companies.

Front 26

SEC

Back 26

Securities and Exchange

Front 27

FASB & SEC

Back 27

Private sector authorities charged with establishing and maintaining the standards of IFRS & GAAP.

Front 28

Who's standards are broader than the others.

Back 28

IFRS standards are broader than GAAP.

Front 29

Fair Value

Back 29

The market value, either actual or estimated, of an asset of a liability.

Front 30

GAAP definition of fair value.

Back 30

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Front 31

IFRS definition of fair value.

Back 31

Amount for which an asset could be exchanged or for which a liability could be settled between knowledgeable, willing parties in an arms-length transaction.

Front 32

Norwalk Agreement

Back 32

Joint meeting of FASB & IASB in Norwalk, Conneticut that both pledged to use their best efforts to make their existing financial reporting standards fully compatible as soon as practicable to coordinate their future work programs.

Front 33

Exit value

Back 33

The amount an insurer would have to pay to transfer the liabilities to another party.