Disclosure Analysis Paper Essay
Disclosure Analysis Paper
Disclosures are an essential part of financial reporting for publically traded corporations. The following analysis will look into General Motors Company’s disclosure relating to the company’s current assets of cash equivalents, inventory, and receivables. Disclosures can be found within the General Motors Company’s financial statements and they will help readers gain a better understanding of the financial data. The sections of the company’s disclosures will be analyzed in detail throughout this paper. The General Motors Company uses a table of contents for their significant disclosures so that the reader(s) of their financial statements can easily find whatever he or she may be looking for. The type of disclosure is listed along with a page number where the precise information can be found. The disclosures for the General Motors Company’s assets are very precise. The first note to the reader(s) deals with Presentation. This section explains that General Motors Company’s financial statements are prepared in accordance with generally accepted accounting principles (GAAP) in the United States. This section also lets the reader(s) know of any new accounting standards used by the company.
In the year 2010 a few of these new standards were how the company financed receivables, fair value measurements, transfers of financial assets, and variable interest entities. In note three the company gives information about accounting standards, which have been issued, but are not yet in use in the General Motors Company. One standard deals with business combinations a new standard issued by the Financial Accounting Standards Board (FASB). The new standard for business combinations according to General Motors Company/Annual Report (2011) deals with “the disclosure of supplemental pro forma information for business combinations that occur during the current year” (Notes to financial statements). However, this standard was not to go into effect until January 1, 2011 so it was not incorporated into the 2010 financial statements. Another accounting standard that had not yet be adopted dealt with financial services-insurance. This standard was also put into place by the FASB and it addressed the deferral of acquisition costs within the insurance industry. Basically the new standard changed or modified the type of costs in a company that can be capitalized in the renewal and acquisition of insurance industry.
This standard would not go into effect until January 1, 2012, so it was not adopted for the 2010 financial statements. Within the notes section Note four contains information about Fair Value Measurements. According to General Motors Company/Annual Report, “Cash equivalents, marketable securities, and derivative financial instruments are presented on our financial statements at fair value” (Notes to financial statements). The note goes on to explain where the reader(s) of the General Motors Company financial statements will be able to find the fair value of debt, finance receivables, along with the carrying value related to these receivables and debt. According to General Motors Company/Annual Report (2011), “High liquid investments with a maturity of 90 days or less at date of purchase are classified as Cash and cash equivalents. Investments in securities with a maturity date of greater than 90 days at date of purchase are classified as Marketable securities” (Notes to financial statements). Note five deals with Cash and Restricted Cash disclosures.
This note informs the reader(s) of the financial statements that restricted cash would not include cash used to secure debt set up because of securitization business deals. According to General Motors Company/Annual Report (2011) “Both cash and cash equivalents, which are restricted because of withdrawals of cash or the cash equivalents used under the terms of certain contractual arrangements will be recorded as restricted in other assets on the consolidated balance sheet” (Notes to financial statements). Also discussed in this section are how negative balances are reclassified and the way in which the company treats these occurrences. On the General Motors Company financial statements commercial paper, bank accounts, marketable securities, money market funds, and treasury bills are elements in the cash and cash equivalent sections on the financial statements. All these elements are considered highly liquid and are to be used by the General Motors Company for short-term needs if required. Note 10 for General Motors Company’s financial statements deals with inventories. This disclosure states that the company’s inventories are stated at what is lower between market and cost.
Also stated is that a large part of the United States inventories cost are determined by a last-in, first-out (LIFO) inventory method. The LIFO method was used in between 31% to 26% of GM’s inventories at December 31, 2010 and 2009 respectively (General Motors Company/Annual Report, 2011). First-in, first-out (FIFO) inventory method is used for determining cost for their other inventories. In conclusion the General Motors Company’s financial statements contain a great deal of information and included in this information are 31 disclosures. All the company’s disclosures were placed in their financial statements to aid the reader(s) with understanding the financials as well as making an educated evaluation and informed decisions about the General Motors Company and their financial statements.