Question

WEEK 6 DISCUSSION

ANSWER TWO OF THE FOLLOWING QUESTIONS:

1: How have accounting techniques changed in recent years? How do they resemble practices in Italy during the Renaissance?

2: How has the Security and Exchange Commission (SEC) improved reporting measures for publicly held companies? What are the weaknesses in SEC procedures?

3: Do private or not-for-profit organizations need to be concerned about auditing and fraud? Discuss the similarities and differences with public, for-profit companies.

Answer 1

2. Security and Exchange Commission (SEC) improved reporting measures for publicly held companies in the following manner:

Since 2003, when the SEC first adopted rules regarding the use of non-GAAP financial measures, there has been a constant tension between the utility of these measures and their potential to mislead investors. In recent years, the use of non-GAAP measures in public company filings has significantly increased, as has the discrepancy between these measures and their GAAP equivalents. The SEC has taken note of these trends and, since 2016, has correspondingly escalated its scrutiny of non-GAAP disclosures. In 2018, the SEC indicated that it may further intensify its enforcement in this area for the protection of investors.

• Increased Use and Variance of Non-GAAP Measures:

Nearly all large public companies now report non-GAAP metrics in their financial statements. Along with the use of non-GAAP metrics, the discrepancy between GAAP and non-GAAP measures has been growing, and non-GAAP measures are invariably more favorable. In 2015, pro forma earnings-per-share were 30 percent higher on average than GAAP EPS for companies in the S&P 500. Notably, in an August 2018 comment letter, the SEC instructed an issuer not to title non-GAAP measures “pro forma” but instead, “as adjusted” if the measures do not comply with Article 11 of Regulation S-X—another indication that the SEC is keen to ensure that investors are not misled by the presentation of non-GAAP financial statements.

• Board Oversight of Non-GAAP Disclosures:

Appropriate Board disclosure controls depend upon the rigor with which processes are followed and the consistent use of good judgment. Non-GAAP financial measures can be useful disclosure metrics intended to provide insight into company performance and prospects. In certain cases they more accurately describe the financial picture than the comparable GAAP measures. However, non-GAAP measures can be misleading or confusing, and may be presented in ways that violate SEC regulations or guidance. The equal-or-greater prominence requirement is not a difficult regulation with which to comply. Particularly in light of continued SEC scrutiny and possibly increasing enforcement activity, companies should ensure that they follow the relevant reporting requirements. In order for non-GAAP financial statements to provide high-quality information that is useful to investors, they should be accurate, complete, consistent, and in compliance with applicable regulations.

Weakness in SEC Procedures:

These weaknesses included the segregation of duties over authorization, review and recording of transactions, as well as the financial reporting of such transactions.

3.) Similarities between public, not for profit companies:

• Both non profit as well as public organizations have goals and missions which are well defined. Their products or services are known by every one.

• The non profits should satisfy the objectives and needs of their various stakeholders just like a private company knows their customers and serve them accordingly.

• Both non profit and public organizations have limited resources and the goals must be met with the limited funds.

• Like private and commercial business corporations, many non profit organizations have boards, management and different levels of staff which help in the efficient working of the organization.

Differences between public and not for profit companies:

• There is third party funding in the case of non profit but not in Public business. A non profit may get donations, grants and government funds.

• The non profits are generally run by the volunteers but for Public businesses are run by employees who are hired at wages.

• The stakeholders might not contribute financially to the organization unlike the public business where the shareholders have to contribute financially.