1. Why is it important for managers to have financial information?
2. Do you think a manager will obtain enough financial information to control operations effectively if the manager simply reads a set of financial statements once a year? Why or why not?
3. The owner of a small business commented to a friend that he did not see the need for an accounting system in his firm because he closely supervises day-to-day operations and knows exactly what is happening in the business. Would you agree with his statement? Why or why not?
4. This chapter listed a number of questions that the owner or manager of a firm might ask when trying to evaluate the results of the firm’s operations and its financial position. If you were an owner or manager, what other questions would you ask to judge the firm’s performance, control operations, make decisions, and plan for the future?
5. The major objective of most businesses is to earn a profit. What other objectives might a business have? How can financial information help management to achieve these objectives?
6. Many business owners and managers are not accountants. Why is it useful for such people to have a basic knowledge of accounting?
7. Are international accounting standards important to management? Why or why not?
8. Why is the separate entity assumption important to a manager?

AEC Computers is in the process of signing a large contract with a circuit board supplier, Gerald Bown’s Electronics. At a party you overhear two individuals stating that a few of Mr. Bown’s checks were returned by the bank. As a friend of Mr. Bown’s son, you are afraid to mention this fact to your President because it would cancel the contract. What should you do?

Refer to The Home Depot, Inc. 2004 Annual Report in Appendix A.

1. Review the letter written by Bob Nardelli, President and Chief Executive Officer. To what audiences is the letter directed? Describe the types of financial information presented in the letter. Why would this information be important to readers?
2. Information provided in a company’s annual report can also include nonfinancial strategies for merchandising, customer service, or new ventures. Based on the letter presented from The Home Depot, Inc.’s president and CEO, describe three successful strategies that the company implemented in 2004.

Within a company’s annual report, a section called “Notes to Consolidated Financial Statements” offers general information about the company along with detailed notes related to its financial statements. An excerpt from American Eagle Outfitters, Inc.’s, “Notes to Consolidated Financial Statements,” 2003 Annual Report, is presented below.

A certified public accountant (CPA) who audits a company’s financial statements must be independent. What is meant by “independent” in this sense? Why is it important? What situations or factors might affect a CPA’s independence?

As the manager of the accounting department, you have been asked by the human resources director to help prepare a job description for a job opening in your department. The company wishes to fill the position of bookkeeper. The heading of your memo should include the following:

Date:
To:
From:
Subject:

The body of your memo should include the job responsibilities, and the training and experience necessary for the position.

Palfreyman Mattress Company is planning to expand into selling bedroom furniture. This expansion will require a loan from the bank. The bank has requested financial information. Discuss, in a group, the information the bank would require. What information, if any, would you not provide the bank?

Go to the FASB Web site at www.FASB.org. The FASB pronouncements are listed. How many FASB pronouncements are currently listed? How are they listed?