Glossary – Chapter 15

• accounting changesChanges from one acceptable method of accounting to another acceptable method; like straight-line depreciation to a declining balance approach
• Accounting Principles BoardThe private sector group charged with developing accounting standards from 1959 to 1973; primary authoritative pronouncements were known as "opinions"
• Accounting Standards CodificationResearch tool deemed to be the primary authoritative source and reference guide on accounting standards
• Accounting Standards Update (ASU)The official notification issued by the Financial Accounting Standards Board of a new or modified accounting rule
• American Institute of Certified Public Accountants(AICPA) an organization whose members are CPAs interested in advancing the accounting profession
• basic EPSThe simplest earnings per share number; earnings available to common shares divided by weighted average shares, without factoring in potential dilution
• book value per shareCommon stockholders' equity divided by common shares outstanding, to indicate stockholders' equity per share
• comparabilityAn enhancing quality of accounting such that even though different companies may use different accounting methods, there is still sufficient basis for valid comparison
• complex capital structureCompanies with options, warrants, or convertible bonds and stocks that may result in the issuance of additional shares
• comprehensive incomeNet income plus items of other comprehensive income (e.g., market value adjustments of available for sale securities)
• consistencyAn enhancing quality of accounting such that deviations in outcomes from period to period should be the result of deviations in underlying performance (not accounting quirks)
• diluted EPSAn earnings per share number; adjusted to reflect the potential effect of dilutive securities
• dilutive securitiesOptions, warrants, convertible bonds, convertible stocks, and other items that have the potential to increase the number of shares outstanding
• discontinued operationsThe special income statement reporting of the impact of disposing or abandoning of a component of a business
• dividend payout ratioDividend per share divided by earnings per share
• dividend rateDividend per share divided by stock price; also called dividend yield
• earningsA concept that relates to income from continuing operations plus/minus discontinued operations
• Earnings per shareEPS; generally understood as the amount of income for each share of stock, but is actually better refined as basic and diluted EPS (see those definitions)
• EBITAn analyst's calculation to reflect "earnings before interest and taxes"
• EBITDAAn analyst's calculation to reflect "earnings before interest, taxes, depreciation, and amortization"
• entity assumptionAccounting information should be presented for circumscribed distinct economic units
• faithful representationA fundamental quality of accounting such that information must be truthful; complete, neutral, and free from error
• GAAPGenerally accepted accounting principles -- encompass the rules, practices, and procedures that define the proper execution of accounting
• going-concern assumptionIn the absence of evidence to the contrary, accountants assume that a business will continue to operate well into the future
• International Financial Reporting Standards (IFRS)The specific accounting rules developed by the International Accounting Standards Board
• intraperiod tax allocationSeparately reported items like discontinued operations, prior period adjustments, and other comprehensive income, are to reported net of their specifically related tax effects
• monetary unit assumptionAccounting measures transactions and events in units of money, in contrast to some other unit of measure (e.g., acres of land)
• net incomeIncome from continuing operations plus/minus discontinued operations, but before items of “other comprehensive income”
• PCAOBPublic Company Accounting Oversight Board -- a private-sector, non-profit corporation charged with overseeing the auditors of public companies
• price earnings ratioThe per share market value of a stock divided by its earnings per share
• principles-basedThe idea that accounting standards should articulate broad-based principles rather than specific and detailed rules
• prior period adjustmentTo correct errors from prior years; prior financial statements are retroactively changed to make them correct
• relevancyA fundamental quality of accounting such that information should be timely and bear on the decision-making process by possessing predictive or confirmatory (feedback) value
• remeasurementUses a variety of exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact operating income.
• restatementThe financial statements of prior periods are redone to reflect the correct amounts
• retrospective adjustment
  Revision of the financial statements for prior periods to reflect the application of a current change in accounting method
• return on assets ratioA ratio comparing income (net income plus interest) to the average total assets
• return on equity ratioA ratio comparing income (net income minus preferred dividends) to the average total equity
• rules-basedThe idea that accounting standards must be very specific to provide adequate guidance and drive consistency in reporting
• Sarbanes-Oxley Act"SOX" -- Legislation that imposes stringent controls over reporting and auditing; created the Public Accounting Oversight Board
• Securities and Exchange Commission"SEC" -- regulatory body with which public companies must file and report
• stable currency assumptionAn accounting assumption that presumes the currency is not impacted over time by inflation
• timelinessAn enhancing quality of accounting such that information is available in sufficient time to be capable of influence
• translationUses prevailing exchange rates to convert assets and liabilities of a foreign affiliate to the reporting currency; adjustment may impact other comprehensive income.
• understandabilityAn enhancing quality of accounting such that information is clear and concise to those with reasonable business knowledge
• verifiabilityAn enhancing quality of accounting such that different knowledgeable and independent observers reach similar conclusions