Accounting For Dummies®, 4th Edition

12.1. Recognizing Management's Role

Whether a business is a small private company or a large public corporation, its annual financial report consists of

• The three basic financial statements: income statement, balance sheet, and statement of cash flows.

• A statement of changes in owners' equity (if needed). Although it's called a "statement," this item is more properly described as a supplementary schedule. It reports certain information regarding changes in owners' equity accounts during the year that is not included in its three primary financial statements. (See "Statement of Changes in Owners' Equity" later in the chapter.)

• And more.

In deciding what "more" means, the business's CEO and top lieutenants play an essential role — which they (and outside investors and lenders) should understand. The CEO does certain critical things before a financial report is released to the outside world:

1. Confers with the company's chief financial officer and controller (chief accountant) to make sure that the latest accounting and financial reporting standards and requirements have been applied in its financial report. (The president of a smaller private company may have to consult with a CPA on these matters.) In recent years, we've seen a high degree of flux in accounting and financial reporting standards and requirements. The private sector Financial Accounting Standards Board (FASB) and the governmental regulatory agency, the Securities and Exchange Commission (SEC), have been very busy in ...