Accounting Methods

AC325
Requirements for Annual Report Project

Each team will select a different company to analyze its annual report.
There are five components to the project. Assignment # 4 culminates in a written report evaluating the financial strengths and weaknesses of the company.
While teams may divvy out various tasks, the entire team is responsible for the whole project. Given that, it is recommended that for quality control purposes, the team review work completed by individual members. Once the quantitative calculations are completed and the annual report is fully read, the team will need to fully discuss and contemplate conclusions together. This critical analysis should not be divided out individually; each team should plan to set aside time to discuss collectively. You may want to schedule a time to include your instructor in the conversation if the team is unable to arrive at a conclusion.
Set up the project using the Collaboration feature in Canvas so that the entire team can work collaboratively. Be sure to include your instructor as a participant. However, you will want to download your work as Excel and Word documents before submitting the various project components to your instructor. You may also choose to use ZOOM to meet virtually.
Grading rubrics are provided at the end of this document. Be sure to review those as you work through the project. Even though the “team member” rubric is listed last, it applies to all aspects of the project so be sure to understand what is expected of you as a team member.
Part 1 Select Company
As a team, choose a publicly-traded company and obtain its annual report or 10K.
Select a publicly-traded company that you understand what it does – and that you are interested in. Generally, that is a company that makes and/or sells tangible products. Do not select a public utility, financial institution, brokerage firm, insurance company, cooperative, or government entity. “Summary annual reports” are not sufficient.
A useful resource is fortune.com. This site provides links to the websites of Fortune 500 companies.
You can access company SEC 10K filings alphabetically by following these steps:

1) click on this link:
https://www.sec.gov/divisions/corpfin/organization/cfia.shtml
2) Select the letter that matches the first letter of your company. Example, you click on (C) to
search for Costco.
3) Find your selected company in the list and copy the CIK number for example:
COSTCO WHOLESALE CORP /NEW has CIK Number: 0909832
4) On top right of the screen, click (Home) button
5) Under the search box, click on (Company Filings)
6) Paste your company’s CIK# into the Fast search box
7) In the filling type box type (10-K)
8) Select the (Interactive Data) for your selected year
9) Click on (View Excel Document) to download a copy of the Financial Statements in EXCEL

You can also order a hard copy of the annual report or 10K. These are free; however, allow time for it to be delivered through the mail. To obtain a printed copy of the annual report, contact the company’s Investor Relations department.

Part 2 Complete Quantitative Analysis (75 pts)
Using Excel, complete trend analysis (both horizontal and vertical) and calculate all ratios in Chapter 24 of your textbook. The Chapter 24 lecture provides a framework for all of this.

Part 3 Overview of Annual Report (50 pts)
Using your company’s annual report &/or 10K as well as internet sources, respond to the following. (Source: Annual Report Project by Nancy A. Herring, PhD, CPA)
1. What is the name of your company?
2. What is the industry classification for your company (according to Fortune or the Internet site you are using)?
3. On what stock exchange is the company’s stock traded?
4. What is the ticker symbol for the company?
5. What were the lowest and highest stock prices during the past year?
6. Describe the nature of the company’s business.
7. List the company’s primary products or services (use brand names where available).
8. What is the address of the company’s corporate headquarters?
9. What is the address of the company’s web site?
10. List the countries in which the company operates.
11. Who is the chairman of the company’s board of directors?
12. Who is the company’s CEO?
The annual report contains several sections. Identify the following page number each of the following items are found in your company’s annual report. (Although the page number is only requested here, you are strongly encouraged to read each of these sections as this time.)
13. FINANCIAL HIGHLIGHTS. This section provides a summary of selected financial results over a number of years. You may find two schedules providing highlights: one brief summary near the front of the annual report and a more detailed summary in the financial section. This second section may be called Five-Year Summary of Selected Financial Data. Note its page number here.

Page # ______

14. THE CHAIRMAN’S LETTER. This letter provides the chairman’s overview of the past year and developments which will affect the next year. Note its page number here.
Page # ______
15. THE COMPANY, ITS PRODUCTS, ITS EMPLOYEES. This section may contain a number of color photographs and will highlight the products and accomplishments of the company. Note its page number here.
Page # ______
16. MANAGEMENT DISCUSSION AND ANALYSIS. This section discusses operating results, industries in which the company operates, financing and investing activities, significant events, trends and developments. Note its page number here. (Sometimes Management Discussion and Analysis is combined into the Chairman’s Letter.)
Page # ______
17. THE FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS. This section contains the balance sheet (also called statement of financial position), income statement, statement of cash flows, and statement of stockholders’ equity. The accompanying notes, as indicated at the bottom of each of the above statements, are an integral part of the financial statements. The financial statements cannot be understood without reference to the notes. Consequently, the financial statements AND accompanying notes will be the focus of this entire project. Note the page number of each of these financial statements.
Balance Sheet _____
Income Statement _____
Statement of Cash Flows _____
Statement of Stockholders’ Equity _____

Identify the number of the note and its page number for the following items:
Summary of significant accounting policies Note # ____ Page _____
Inventories Note # ____ Page _____
Plant assets Note # ____ Page _____
Long-term debt Note # ____ Page _____
Employee benefit plans Note # ____ Page _____
Commitments and contingencies Note # ____ Page _____
Other notes
Title of note ______________ Note # ____ Page _____
18. MANAGEMENT REPORT ON INTERNAL CONTROL Page _____

19. THE INDEPENDENT AUDITOR’S REPORT:
REPORT ON INTERNAL CONTROL Page _____
REPORT ON THE FINANCIAL STATEMENTS Page _____
20. REVIEW THE CHAIRMAN’S LETTER TO THE SHAREHOLDERS. Page _____

Summarize the major points made in the letter. (This make take several paragraphs.)

21. Locate the management report(s) and the independent auditor’s report(s). Answer the following:
a. Who is responsible for the preparation and integrity of the financial statements?
b. Does the company maintain a system of internal controls? Why?
c. What is the purpose of the company’s audit committee?
d. What is the name of the independent public accountants (auditor)?
22. There are two independent auditor’s reports. (1) a report on internal control, and (2) a report on the financial statements. The following questions relate to the auditor’s report on the financial statement audit.
a. What is the auditor’s responsibility?
b. What is the purpose of an audit?
c. Summarize the auditor’s opinion.
Part 4 Complete a Written Report (100 pts)
Working as a team, write a comprehensive written report using the data and analysis generated in Part 2 & 3. Your instructor is the intended audience. Your report should be no less than 10 pages, double-spaced and include:
1. An introductory paragraph, body, and conclusion paragraphs.
2. Graphs and charts are encouraged; however, those should be a normal reading size (and not enlarged as an attempt to lengthen the paper).
Writing suggestions:
It is challenging to communicate clearly when discussing numbers. When asked to comment on changes or trends, first identify the change and then explain the significance of the change and/or perhaps the cause of the change. Here is an example for gross profit.
Gross profit rose from 57% of sales in 2014 to 59% in 2015. In terms of dollars, gross profit grew $1.3 million from $4.1 million in 2014 to $5.4 million in 2015. This growth was accomplished in a couple of ways. The company opened up 52 new stores in 2015 enabling a significant growth in sales and ultimately gross profit. The company also reduced its product costs (cost of sales) by negotiating more closely with local suppliers enabling gross profit to grow.

In their book Effective Writing, A Handbook for Accountants, Claire B. and Gordon May provide the following 7 writing tips. Be sure to incorporate these as you write.

Your paper should be structured as follows:
1 – Introduction and company background.
2 – Discuss the accounting methods chosen by the company and the impact of those choices on the financial statements. These choices likely will include the company’s inventory-costing and depreciation methods as well as other methods you consider significant.
3 – Assess the company’s liquidity. Be sure to fully identify what caused certain trends and changes in patterns.
4 – Discuss the company’s activity ratios. Be sure to fully identify what caused certain trends and changes in patterns.
5 – Discuss the company’s profitability. Be sure to fully identify what caused certain trends and changes in patterns.
6 – Discuss the company’s coverage and solvency ratios. Be sure to fully identify what caused certain trends and changes in patterns.
7 – Identify and discuss significant cash flows. Be sure to fully identify what caused certain trends and changes in patterns.
8 – Identify any other information which you consider appropriate in coming to a decision, including dividend patterns and price-earnings ratios. Be sure to fully identify what caused certain trends and changes in patterns.
9 – Overall conclusion about the financial health of the company. (Ultimately answer the question that if you were a creditor or investor, would you loan money to or invest in this company?) Fully explain the reasons for your recommendation.

Part 5 Function as an Effective Team Member (25 pts)
Each member will complete an evaluation of all team members, including him/herself. See the following evaluation sheet as well as the grading rubric at the end of this document.
Print the following evaluation sheet and complete. If completed manually, make a PDF copy (or take a picture) and submit to your instructor. This should be completed individually and should NOT be discussed as a team to maintain confidentiality.

AC325 PEER EVALUATION – Team Project
Rated by _____________________________ Date ________________
Use the following scale for your ratings. Please note that these measures do NOT correlate with a typical grade structure of 90% A, 80% B, 70% C, 60% D, < 60% F. 0 - 2 totally lacking effort and enthusiasm 3 – 4 unacceptable 5 – 6 acceptable 7 – 8 good 9 – 10 excellent Names of Group Members (including yourself) __________ __________ __________ __________ 1. Interpersonal Skills: takes initiative in organizing team meetings and setting team deadlines, listens and speaks a fair amount, shares his/her perspective, considers others’ perspectives, helps team reach fair decisions, works to resolve group conflict, debates issues without arguing, treats others respectfully. Ratings for Criterion #1 Interpersonal Skills __________ __________ __________ __________ 2. Individual Contributions: collects and contributes accurate content, goes beyond to investigate information, highly productive in accomplishing assignment, shares all information with the team. Ratings for Criterion #2 Individual Contributions __________ __________ __________ __________ 3. Team Attitude: cares that the team produces high-quality work, expects and encourages high-quality work from all members of the team, provides ideas to improve the outcome of the team project. Ratings for Criterion #3 Team Attitude __________ __________ __________ __________ 4. Keeping on Track: always submits assignments on time without being reminded, reminds others about individual work to complete, and resets team deadlines when team works faster or slower than expected, does her/his share of work or more. Ratings for Criterion #4 Keeping on Track __________ __________ __________ __________ TOTALS (Maximum 40) __________ __________ __________ __________ Comments Appendix: Project Grading Rubrics Part 2 Overview of Annual Report (25 pts max) These are a series of questions addressed about the company and its annual report. SCORE COMMENTS Information requested is complete. All information is correct. Only relevant information is included. Annual Report Overview Point Scoring: 22-25 Exemplary (outstanding, exceeds expectations) 20-21 Superior (good, meets most or all expectations) 17-19 Proficient (fair, some requirements not met) 15-16 Deficient (poor, many requirements not met) <15 Inadequate (most requirements not met) EXCEL (50 pts max) SCORE COMMENTS The content goes beyond the assignment requirement or the assignment is completed with near perfection. Has all the formulas. No math mistakes Layout is creative and visually pleasing. Contributes to the effectiveness of the document. No misspelled words. Excel Point Scoring: 45-50 Exemplary (outstanding, exceeds expectations) 40-44 Superior (good, meets most or all expectations) 35-39 Proficient (fair, some requirements not met) 30-34 Deficient (poor, many requirements not met) <30 Inadequate (most requirements not met) WRITTEN PAPER (100 pts max) SCORE COMMENTS Written Paper - Content (70 pts max) This project part requires connecting patterns and conclusions identified in earlier assignments and writing a report. Highly logical & concrete development of ideas and conclusions. Provides support for conclusions. Wirtten Paper - Coherent Organization & Document Design (10 pts max) Report includes an introduction, body, and conclusion. Ideas are arranged logically. Uses short sentences. Topic sentence is at beginning of paragraph. Headings, spacing, bullets/numbers, margins, and font are used very effectively. Written Paper - Writing with Clarity & Conciseness (10 pts max) Communicates ideas using words economically Expresses ideas clearly and uses proper terms. Uses well-structured sentences. Written Paper - Grammar & Mechanics (10 pts max) Correct use of grammar throughout. TOTAL Written Paper Point Scoring: 90-100 Exemplary (outstanding, exceeds expectations) 80-89 Superior (good, meets most or all expectations) 70-79 Proficient (fair, some requirements not met) 60-69 Deficient (poor, many requirements not met) <60 Inadequate (most requirements not met) Function as a TEAM MEMBER (25 pts max) SCORE COMMENTS Note: the instructor reserves the right to enhance scores above for individual students due to extraordinarily high team member performance; likewise, individual scores may be diminished due to very low team member performance.) Effective interpersonal skills (team organization, eliciting opinions from others, and handling conflict. Contributes to project Quality contributions to project Expects & enables high-quality work from others. Keeps team on track by reminding others and submitting work in a timely manner. Functioning as a Team Member Point Scoring: 22-25 Exemplary (outstanding, exceeds expectations) 20-21 Superior (good, meets most or all expectations) 17-19 Proficient (fair, some requirements not met) 15-16 Deficient (poor, many requirements not met) <15 Inadequate (most requirements not met)