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Assignment 1 ACCT 7302 Dr. Jeffery Hamm                                                  Name: Subhashish (Ash) Duttachwodhury
Income Statement, Balance Sheet, Cash Flow and Equities considered for AOL Time Warner.(source: http://finance.yahoo.com – AOL Time Warner Annual Financial Statements)

  • Relevance – all figures look relevant.
  • Reliability – since AOL trades on NASDAQ, it may be assumed that the outside auditors for AOL have certified that the figures mentioned in these statements are reliable.
  • Understandability
    - Non recurring Expense upwards of $45 billion, purpose unspecified in the year 2002 statement.   2001 - $250 million and 2000 - $10 million.

    - Effect of Accounting changes in 2002 income statement shown as $54 billion – not clear from         what style to what style.

  • Consistency – Statements are consistent to a large extent with the exception of a few items which seem to have one entry in the last three years or none and have specific names like Non recurring events – Extraordinary Items etc.
  • Materiality - R&D seems to have incurred no income, but why has it been included in the Income statement? Nominally, this entry should have shown some expenses, which it has surprisingly not! Yet, AOL seems to have released its latest version of the browser program (without R&D??).
  • Objectivity – All figures are stated objectively with no overlaps or ambiguity.
  • Periodicity – This is for the financial years 2002, 2001 and 2000 each ending at dates 31st of December of the respective years.
  • Disclosure – questionable. While certain figures are stated straightforward, certain others like non-recurring expense increase are not explained forthright.
  • Recognition and Measurement – After comparison with statements of Microsoft, Oracle and Dillard’s, it was found that expenses and income had same patterns of recognition and measurement. However, there exists some obfuscation in all these statements as to what some of the actual expenses are and it was found that roughly these statement entry-headers matched each other by 85%.