Accounting Disclosures & Audit Reports: Verizon Communications

This report provides a detailed analysis of Verizon Communications Inc., focusing on its accounting policies, common disclosures, the importance of the management discussion and analysis section of its annual report, segmented information, and types of audit reports. It examines Verizon's disclosures regarding fixed assets and significant accounting policies, highlighting the company's operational environment, market risks, and acquisitions. The report also discusses the advantages and disadvantages of segmented information, recommending that Verizon segment its financial data based on the countries it serves. Furthermore, it outlines the different types of audit reports and notes that Verizon received an unqualified audit report, which is generally preferred by banks for financing purposes. This analysis offers valuable insights for potential investors and stakeholders interested in understanding Verizon's financial performance and risk management strategies. Desklib provides access to this and other solved assignments for students.

Running head: INTERMEDIATE ACCOUNTING III
Intermediate accounting III
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Table of Contents
Disclosure of accounting policies........................................................................................................2
Common disclosures............................................................................................................................3
Importance of management discussion and analysis section of the annual report.........................3
Segmented information.......................................................................................................................5
Types of audit report...........................................................................................................................7
Reference..............................................................................................................................................8

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Verizon Communications Inc. that was incorporated on 7th October 1983 is the
holding company. It provides entertainment, information and communication services along
with its subsidiaries to the consumers. Various segments of the company include wire line
and wireless products. The wire line segment provides video and voice communication
services and products. On the other hand, the wireless segment provides communication
services and products that include equipment sales, data service and wireless voice to the
government, business and consumers (Verizon.com, 2018).
Disclosure of accounting policies
Accounting disclosure is the statement that identifies the company’s financial
policies. It shows the profits and expenses over the particular period of time. The accounting
policies are disclosed for both potential as well as existing investors of the company. The
accounting policies are the methods and strategies followed by the business. Disclosures also
include the cash flow statement, balance sheet, income statement of the company. Main
objective of disclosures of the accounting policies is to disclose the event or affair that has an
impact on the financial statement of the company (Tsalavoutas & Dionysiou, 2014). The
companies are required to follow the legal systems while preparing the financial statement
and the companies are required to publish the same along with the financial statements. The
disclosures are made to other publications apart from the annual report. Disclosures are
compulsory as per the regulations and law and shall be made to the stockholders and
shareholders of the company. Further, the disclosures provide the insight with regard to the
management styles for conservative or aggressive earning natures. It also ensures that the
policies used are not misleading and the management followed consistent and strict
approaches while the accounting statements were prepared (Guay & Verrecchia, 2018).

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Common disclosures
Most crucial and common disclosures among others are disclosures regarding the
fixed assets and disclosures regarding the significant accounting policies. Disclosures for
fixed assets provides the information regarding the information related to categories of fixed
asset like equipment, building, leasehold improvements and furniture used for the business
operations. This disclosure also shows the current depreciation and accumulated depreciation.
On the other and the disclosure regarding the summary for significant accounting policies
provides the users with the information regarding the company, its major revenues,
accounting policies followed for preparing the financial statement and recognition criteria for
various items (Glaum et al., 2013).
Analysing the annual report of Verizon Communications for the year ended 2017 it
can be found that the company provided complete disclosures regarding fixed assets and
significant accounting policies to provide sufficient insights to the users regarding the these
items (Verizon.com, 2018).
Importance of management discussion and analysis section of the annual report
The management discussion and analysis section is the section where various aspects
of business associated with the current as well as the past performance of the company are
discussed by the company’s management. Further, under this section the management
discusses regarding the operational efficiency of the company for the previous year.
Therefore, it reveals the improvement or deterioration of the company’s financial
performance over the past years. Based upon the analysis the company takes various future
decisions like objectives, goals and decisions regarding the new projects. The section also
includes the financial as well as non-financial aspects that focus on the management style and
managerial operation of the company (Loughran & McDonald, 2014). This section plays

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important role as it discusses the past performance of the company, key factors that has an
influence on the performance of the company, financial performance, financial position and
growth prospects of the company.
3 items from the management and discussion analysis section of Verizon
communication that can influence the decision of potential investors are as follows –
 Trends and operating environment – the industry under which the the company
operates is highly competitive and the company expects to sustain through providing
emerging services, non-traditional and traditional services to the customers that will
help in increasing the market share. The base for high quality customers and the
improved network differentiates it from its competitors and allows the company to
manage and plan through the changing competitive and economic circumstances.
Further, the company is focussed on execution of the business fundamentals like
delivering strong operational and financial results, maintaining the customer base with
high quality and generation of strong free cash flows. Potential and current
competitors of the company includes the wireless service providers, cable companies,
foreign as well as domestic telecommunication service providers, internet service
providers and satellite TV companies. Irrespective of the challenging environment the
company expects that it will grow in its major aspects and will continue offering the
customers with various products like digital TV, long distance as well as local voice
services, broadband internet access and IP services and products. The company will
also focus on the cost efficiencies for offsetting the adverse impacts that is generated
from non-favourable economic circumstances and various competitive pressures
(Verizon.com, 2018).
 Market risk – under the normal business course the company is exposed to various
business risks that include fluctuation in the rate of foreign exchange, changes in the

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rate of interest, changes in the investment, commodity and equity prices and changes
in the rate of corporate tax. To minimize the impact of market risks the company
employs the strategies for risk management that includes using various derivatives
like forward swaps for interest rate, swaps for cross currency, caps for interest rate
and swaps for interest rate. However, the company does not hold the derivatives for
the purpose of trading. Further, it is the general policy of the company to enter the
foreign currency, interest rate and derivative transactions for achieving the objectives
to minimize the different market risks exposures (Panaretou, Shackleton & Taylor,
2013). Further, the company’s objectives include maintenance of mix of variable and
fixed rate of debt to lower the cost of borrowing within the reasonable parameters of
risks.
 Acquisitions – during May 2015, the company entered into the merger agreement
with AOL Inc under which the company acquired all the common outstanding stock
of AOL at $ 5.00 per share. AOL was the leader in advertising platform and digital
content space. The acquisition of AOL share will enhance the Verizon’s advertising
platform and its future business. Further, during July 2016 the company entered into
the stock purchase agreement with Yahoo Inc. based on which the company agreed to
acquire stock of 1 or more subsidiaries of Yahoo (Verizon.com, 2018).
Segmented information
Business segmented information segregates the financial data of the business based on
the subsidiaries or geographical location or divisions. In the annual report of the company the
main purpose of segmented information is to deliver accurate picture of the company and its
subsidiary’s performance to the shareholders and other users of the financial statements. for
the management level the segmented information are used to analyse each segment’s

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expenses, incomes, liabilities, assets and other details for assessing the riskiness, profitability
and taking other major decisions (Franzen & Weißenberger, 2015).
Advantages of segmented information
 Resource allocation – segmented information plays important role in allocation of
resources based on the requirement of each segment. Non-availability if non-
segmented information leads to misallocation of scarce resources
 Credit and investment decisions – it enables the management and user of financial
statement to analyse the uncertainties regarding the amount and timing of cash flows
which in turn enables to assess the risk involved in different operating scenarios.
 True and fair value – segmented information is required to present the financial
statement in true and fair manner. It presents the financial statement in more
transparent and clear manner that enables the user and potential investors to have
better idea regarding the operational segments and their profitability aspects (Farías &
Rodríguez, 2015).
Disadvantages of segmented information
 Applicable for big entities – it is not applicable for small entities and they may find it
irrelevant and costly
 Emphasis of present scenario – segment information only focuses on the present
scenario and not takes into consideration the past year’s result and therefore the
companies may not find it relevant
 Manipulation of data – the company can manipulate the data if it wants to show any
particular segment more profitable and therefore, the segmented information is not
always accurate (Lail, Thomas & Winterbotham, 2013).

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Verizon Communication reports the segments as Wireline segment and Wireless
segment.
As the company provides services to various countries, it is recommended to segment
its financial information based on the countries to which it provides its services. It will enable
the company to analyse how much profit or loss generated from which country. It will enable
the company to take decisions regarding closing down the services in any particular country
if it is not profitable.
Types of audit report
There are 4 types of audit reports as follows –
 Unqualified report – this type of report indicates that as per the auditor’s opinion the
financial activities and financial statement of the company is correct and therefore is
acceptable
 Qualified report – this type of report indicates that though error has not been found
the report has not been prepared as per the required accounting and auditing standards
(Rahimian, Tavakolnia & Karamlou, 2014).
 Adverse report – this states that the company has not complied with the required
accounting and auditing standards and discrepancies found in the financial statements
of the company (Tsipouridou & Spathis, 2014).
 Disclaimer of opinion – under this circumstance, the auditor is not able to issue any
audit report owing to absence of the appropriate financial records.
Generally the bank prefers unqualified audit report for the purpose of allowing
finance to the company. It is found that the auditors of Verizon Communication issued

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unqualified audit report to the company. This report will help it to get loan from the bank as
the bank prefers unqualified audit report for the purpose of allowing finance

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Reference
Farías, P., & Rodríguez, R. (2015). Segment disclosures under IFRS 8’s management
approach: has segment reporting improved?. Spanish Journal of Finance and
Accounting/Revista Espanola de Financiacion y Contabilidad, 44(2), 117-133.
Franzen, N., & Weißenberger, B. E. (2015). The adoption of IFRS 8–no headway made?
Evidence from segment reporting practices in Germany. Journal of Applied
Accounting Research, 16(1), 88-113.
Glaum, M., Baetge, J., Grothe, A., & Oberdörster, T. (2013). Introduction of International
Accounting Standards, disclosure quality and accuracy of analysts' earnings
forecasts. European Accounting Review, 22(1), 79-116.
Guay, W., & Verrecchia, R. E. (2018). Conservative disclosure. Journal of Financial
Reporting.
Lail, B. E., Thomas, W. B., & Winterbotham, G. (2013). Strategic Segment Reporting Using
the “Corporate/Other” Segment. Accounting Horizons, 28, 455-477.
Loughran, T., & McDonald, B. (2014). Measuring readability in financial disclosures. The
Journal of Finance, 69(4), 1643-1671.
Panaretou, A., Shackleton, M. B., & Taylor, P. A. (2013). Corporate risk management and
hedge accounting. Contemporary accounting research, 30(1), 116-139.
RAHIMIAN, N., TAVAKOLNIA, E., & KARAMLOU, M. (2014). Qualified Audit Opinion
and Debt Maturity Structure.
Tsalavoutas, I., & Dionysiou, D. (2014). Value relevance of IFRS mandatory disclosure
requirements. Journal of Applied Accounting Research, 15(1), 22-42.

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Tsipouridou, M., & Spathis, C. (2014, March). Audit opinion and earnings management:
Evidence from Greece. In Accounting Forum (Vol. 38, No. 1, pp. 38-54). Elsevier.
Verizon.com. (2018). About Verizon. [online] Available at:
https://www.verizon.com/about/homepage [Accessed 2 Jun. 2018].