Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings. These numbers are controversial as they represent management's view of permanent earnings.

image text in transcribed
image text in transcribed
Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings. These numbers are controversial as they represent management's view of permanent earnings. The Sarbanes-Oxley Act (SOX), issued in 2002, requires that if non-GAAP earnings are included in any periodic or other report filed with the SEC or in any public disclosure or press release, the company also must provide a reconciliation with earnings determined according to GAAP. Presented below is the reconciliation of GAAP net income to non-GAAP net income for Cisco Systems, Ine. Disclosure note: For its internal budgeting process, Cisco's management uses financial statements that do not include, when applicable, share-based compensation expensc, amortization of acquisition-related intangible assets, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements, and other contingencies, gains and losses on equity investments, the income tax effects of the foregoing and significant tax matters. Cisco's management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. Required: 1. Which is typically higher-fAAP net income or non-GAAP net income? Is that true for Cisco? 2. Which line item provides the biggest upward adjustment to GAAP net income in calculating non-GAAP net income? 3. What is a justification management provides for its calculation of non-GAAP net income? 4. A concern with non-GAAP reporting is that managers are excluding normal operating expenses for the purpose of reporting higher performance, which could mislead investors and creditors. For which line item is this most likely the concern

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Financial Accounting

Authors: Richard Lewis, David Pendrill

6th Edition

0273638335, 978-0273638339

More Books

Students also viewed these Accounting questions

Question

Find the median for the set of measurements 2, 9, 11, 5, 6.

Answered: 1 week ago

Question

=+What would you leave out to allow readers to share their wisdom?

Answered: 1 week ago