Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Dear Uncle Carlos l feel so appreciate that you suggest Nevile Corp.to me. I received the information of this company and spent long time to

image text in transcribed
image text in transcribed
image text in transcribed
Dear Uncle Carlos l feel so appreciate that you suggest Nevile Corp.to me. I received the information of this company and spent long time to read it. However, I think that basing an investment decision on information of financial statements would be unwise because they are neither relevant nor faithful representation. Firstly, according to the financial statements provided by Nevile Corp, they are a year old and so they have lost their ability to make a difference in my decision making. Because maybe lots of things have changed in that one year. Information with no bearing on a decision is irrelevant. Relevance is one of the two fundamental qualities. Therefore, to be relevant, information provided must be timely Secondly, financial information has predictive value if it has value as an input to predictive processes used by investors to form their own expectations about the future. However, I could not analyze Nevile Corp.'s current resources because the financial statements shown without reference to other years profitability and it also cannot provide its dividend payments. Therefore, it cannot help me predict the amount, timing, and uncertainty of Nevile Corp's future profit-ability. Furthermore, the confirmatory value is closely related to predictive value. These financial statements do not provide feedback (previous evaluations) on any strategies which the company may have apply to increase profits. Besides that, the financial information provided indicates a lack of materiality. It may does not evaluate both the relative size and importance of an item. So the relative size and importance of an item. So the company fails to consider both quantitative and qualitative factors in determining whether an item is material. These financial statements are also not representationally faithful. In order to be representationally faithful, the numbers and descriptions should match what really existed or happened, information provided must be verifiable by expertise. I would like to believe that company reported net income is $2,424,240, and that it hada very favorable debt-to-equity ratio 0.10. But these financial statements are not audited by professional accountant or auditor. So, it could not give me any reasonable assurance about these figures. In addition, these statements fail to disclose about inventory valuation, the information is not complete, I am not able to know which accounting policies and procedures that the company follow to value their assets and what is the impact on the profits also. Finally, Mrs. Neville prepared these statements by herself indicates a lack of neutrality. Because she is not a third party, I'm not sure the information she provided was biased. Furthermore, there is not any disclosure for the depreciation methods and loan agreements indicate these statements are not free from error. So, I am not sure that I could get a promised 40% rate of return finally I do appreciate you went through to get me this financial statements. In this case, I do not wish to invest in the Neville's bonds. Beyond the accounting technical stuff you are saying, are these numbers believable at all? Under any circumstances? S Reply

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

Auditing

Authors: Alan H. Millichamp

8th Edition

082645500X, 9780826455000

More Books

Students also viewed these Accounting questions

Question

2. In what ways have your peers and your parents helped shape you?

Answered: 1 week ago

Question

=+Could you use an ambient ad?

Answered: 1 week ago