WEBVTT NOTE Verify a reported figure 1 00:00:00.000 --> 00:00:15.458 You are listening to Reading 1-5 of the A C C 300 course reading: Verify a reported figure. Follow an Apple inventory amount from its filing location through its entity, date, units, and note context. 2 00:00:15.458 --> 00:00:27.516 Then evaluate what the filing does and does not establish. The chapter also introduces subsequent events and other disclosures that can change the analysis. 3 00:00:27.516 --> 00:00:35.864 Try the questions in the written chapter, and pause before each answer if you want to attempt them yourself. 4 00:00:35.864 --> 00:00:45.216 The written chapter ends with Apple revenue and NIKE property and equipment practice that gives feedback for each answer. 5 00:00:45.216 --> 00:00:52.800 In Chapters 1 to 3, we followed transactions through the accounting system to the financial statements. 6 00:00:52.800 --> 00:01:02.813 Chapter 4 explained who establishes US generally accepted accounting principles (GAAP) and how authoritative guidance governs that work. 7 00:01:02.813 --> 00:01:17.023 Management uses the guidance to recognize, measure, present, and disclose the effects of the company's activities. Now put yourself in the place of someone who receives the finished statements. 8 00:01:17.023 --> 00:01:31.527 How much of that work can you inspect? An outside reader usually sees the statements and other information the company provides, with no access to its journals, ledgers, contracts, or calculations. 9 00:01:31.527 --> 00:01:46.989 A nonpublic company may send statements directly to its owners or lenders. A US public company subject to Securities and Exchange Commission (S E C) reporting requirements files reports that anyone can inspect. 10 00:01:46.989 --> 00:02:00.242 Suppose we are considering buying shares in Apple and want to understand the assets it reports. We open its annual filing and find 5,718 in the inventory row at September 27, 2025. 11 00:02:00.242 --> 00:02:14.231 Before we use that figure to judge Apple's assets, we need to know what it represents. Is it in dollars, thousands, or millions? Does it cover Apple Inc. alone or Apple and its subsidiaries? 12 00:02:14.231 --> 00:02:25.569 We read the statement heading, row label, and date column to answer those questions. How Apple measured that inventory also matters to our interpretation. 13 00:02:25.569 --> 00:02:35.582 We turn to the accounting-policy note for the method and to the auditor's report to understand the assurance provided on the statements. 14 00:02:35.582 --> 00:02:44.712 We can inspect both, but checking the accounting for a particular inventory item may require internal records we cannot see. 15 00:02:44.712 --> 00:02:58.393 As outside investors, we need to understand the filing and its context. Different questions require different information. The word inventory appears in several parts of a filing. 16 00:02:58.393 --> 00:03:11.462 The balance sheet reports an inventory balance. The accounting-policy note identifies the cost method. Another note may explain write-downs or the types of inventory held. 17 00:03:11.462 --> 00:03:26.136 Management's Discussion and Analysis (M D and A) or the risk factors may discuss supply problems or changing demand. These passages concern inventory, but they do not answer the same question. 18 00:03:26.136 --> 00:03:43.087 What do you want to know?, What inventory balance did the company report?; Information to examine, Inventory row and complete balance-sheet headings; What it tells you, Balance, reporting date, entity, currency, and 19 00:03:43.087 --> 00:03:59.328 scale. What do you want to know?, How much did the reported balance change?; Information to examine, Current and comparative balance-sheet columns; What it tells you, Net change between two reporting dates. 20 00:03:59.328 --> 00:04:16.515 What do you want to know?, Why did inventory change?; Information to examine, Notes and relevant M D and A discussion, considered with the comparative balances; What it tells you, Disclosed transactions, conditions, or 21 00:04:16.515 --> 00:04:21.009 management explanations that may help explain the change. 22 00:04:21.009 --> 00:04:35.673 What do you want to know?, Which inventory method does the company use?; Information to examine, Inventory accounting-policy note; What it tells you, The company's disclosed cost method. 23 00:04:35.673 --> 00:04:52.860 What do you want to know?, What makes up the inventory balance?; Information to examine, Inventory detail note, when provided; What it tells you, Disclosed categories such as raw materials, work in process, or finished 24 00:04:52.860 --> 00:04:53.334 goods. 25 00:04:53.334 --> 00:05:10.600 What do you want to know?, What inventory risks does management discuss?; Information to examine, M D and A and risk factors; What it tells you, Management's discussion of supply, demand, obsolescence, or other business 26 00:05:10.600 --> 00:05:11.073 risks. 27 00:05:11.073 --> 00:05:28.181 What do you want to know?, Was the disclosed method applied correctly to particular items?; Information to examine, Filing plus underlying inventory records and calculations; What it tells you, The filing supplies the 28 00:05:28.181 --> 00:05:35.592 reported result and policy; the underlying records are needed to test individual applications. 29 00:05:35.592 --> 00:05:44.751 Comparative balance sheets establish how much the reported balance changed. They do not necessarily explain why it changed. 30 00:05:44.751 --> 00:06:00.016 Purchases, sales, write-downs, business acquisitions, currency changes, and other activity can contribute to the difference. The notes or M D and A may explain some of those causes. Identify who does what. 31 00:06:00.016 --> 00:06:13.196 Public investors need information about a business whose daily records they cannot inspect. The Securities Act of 1933 addresses disclosure when securities are offered for sale. 32 00:06:13.196 --> 00:06:24.440 The Securities Exchange Act of 1934 created the S E C and authorizes continuing reports. The S E C's account of the two Acts explains that distinction. 33 00:06:24.440 --> 00:06:31.440 Four organizations have different responsibilities for a public company's financial reporting: 34 00:06:31.440 --> 00:06:42.130 Participant, Financial Accounting Standards Board (F A S B); Contribution, Sets United States generally accepted accounting principles. 35 00:06:42.130 --> 00:06:51.711 Participant, Company management; Contribution, Prepares the statements and disclosures and takes responsibility for them. 36 00:06:51.711 --> 00:07:01.135 Participant, Independent auditor; Contribution, Examines evidence and expresses an opinion on the financial statements. 37 00:07:01.135 --> 00:07:10.320 Participant, S E C; Contribution, Sets securities-disclosure requirements, receives filings, and reviews compliance. 38 00:07:10.320 --> 00:07:25.671 The S E C makes the company's filing public; it does not write the report or vouch for its accuracy. A company's annual report to shareholders may include its filed Form 10 K, or it may be a different publication. 39 00:07:25.671 --> 00:07:34.824 The S E C's explanation of these roles distinguishes management's statements from the auditor's opinion and the S E C's review. 40 00:07:34.824 --> 00:07:46.616 Interpret the auditor's conclusion. An auditor's report identifies the financial statements and periods covered by the opinion. The opinion addresses those statements as a whole. 41 00:07:46.616 --> 00:07:53.439 It does not cover every other part of a Form 10 K or give a separate conclusion about each transaction. 42 00:07:53.439 --> 00:08:04.569 The auditor may express that opinion only after obtaining sufficient evidence and reasonable assurance that the statements as a whole are free of material misstatement. 43 00:08:04.569 --> 00:08:15.367 Material misstatement sets the kind of error the opinion addresses: one that could affect a user's decision, either by itself or together with other misstatements. 44 00:08:15.367 --> 00:08:28.020 Reasonable assurance describes how much confidence the auditor must obtain before expressing the opinion. The auditor reduces the risk of an inappropriate opinion to a low level, not to zero. 45 00:08:28.020 --> 00:08:38.553 An audit can therefore support the opinion that the statements are not materially misstated without proving that every recorded amount and estimate is correct. 46 00:08:38.553 --> 00:08:48.159 The P C A O B connects the evidence obtained, the assurance level, and the resulting opinion in Auditing Standard 1000, paragraphs.03 and.13-.18. 47 00:08:48.159 --> 00:09:00.216 Apple's auditor concludes that the company's financial statements present fairly, in all material respects, in accordance with United States generally accepted accounting principles. 48 00:09:00.216 --> 00:09:07.039 The report names the statements and periods to which that conclusion applies. Check your understanding. 49 00:09:07.039 --> 00:09:20.289 An analyst reads Apple's audit opinion and concludes that the auditor guarantees every amount in the financial statements is correct. What is wrong with that conclusion? Pause to consider your answer. 50 00:09:20.289 --> 00:09:29.232 Here is the explanation. The opinion provides reasonable assurance about the financial statements as a whole, in all material respects. 51 00:09:29.232 --> 00:09:41.916 It is not an absolute guarantee about every amount. Testing the accounting for a particular item requires the relevant underlying evidence. Choose the report for the question. 52 00:09:41.916 --> 00:09:54.019 A Form 10 K is a domestic operating company's annual filing. It contains business information, risks, management's discussion, and audited annual financial statements. 53 00:09:54.019 --> 00:10:09.602 Under current S E C rules, a Form 10 Q is a quarterly report. A domestic operating company generally files one for each of its first three fiscal quarters. A 10 Q contains interim statements and related disclosures. 54 00:10:09.602 --> 00:10:24.895 Individual statements can show both the quarter and the fiscal year to date, so read each column heading. Those statements receive an independent accountant's review, which provides less assurance than an audit. 55 00:10:24.895 --> 00:10:38.811 A Form 8 K reports certain events or other current information between scheduled reports. See the S E C's filing guide. In May 2026, the S E C proposed an optional semiannual reporting system. 56 00:10:38.811 --> 00:10:54.466 If the proposal is adopted, eligible companies could file a new six-month Form 10 S instead of three Forms 10 Q. The proposal would not make a 10 Q semiannual, and it does not change the rules for an existing filing. 57 00:10:54.466 --> 00:11:03.888 The S E C proposal was still listed as proposed in the S E C rulemaking index when this chapter was checked on September 12, 2026. 58 00:11:03.888 --> 00:11:15.236 Question, What did the company report for the complete fiscal year?; Starting document, Annual report on Form 10 K. 59 00:11:15.236 --> 00:11:27.570 Question, What did it report for a later interim period?; Starting document, Relevant Form 10 Q; inspect each table's period. 60 00:11:27.570 --> 00:11:39.312 Question, What did it announce about a particular event?; Starting document, Relevant Form 8 K and any related exhibit. 61 00:11:39.312 --> 00:11:57.121 An earnings release attached to a Form 8 K is not the audited annual financial-statement set. A June 10 Q also cannot report a balance at the following September year-end. Apply report selection to Apple. 62 00:11:57.121 --> 00:12:09.168 Suppose you need Apple's inventory balance at September 27, 2025. The table lists three actual filings that may appear in a search result. 63 00:12:09.168 --> 00:12:26.355 Choice, A: Apple annual filing; Form and period of report, 10 K; September 28, 2024; Filing date, November 1, 2024. 64 00:12:26.355 --> 00:12:42.645 Choice, B: Apple interim filing; Form and period of report, 10 Q; June 28, 2025; Filing date, August 1, 2025. 65 00:12:42.645 --> 00:12:59.832 Choice, C: Apple annual filing; Form and period of report, 10 K; September 27, 2025; Filing date, October 31, 2025. 66 00:12:59.832 --> 00:13:13.821 Distinguish filings from other public information. Public company communications can have different S E C statuses. Filed material is submitted to the S E C as part of a filing. 67 00:13:13.821 --> 00:13:27.730 Some information is instead furnished to the S E C, often as an exhibit to Form 8 K. Other information appears only on the company's investor website or in a live presentation. 68 00:13:27.730 --> 00:13:33.816 These sources are all public, but their status and level of assurance differ. 69 00:13:33.816 --> 00:13:50.025 Public source, Financial statements and notes filed with the S E C; What it can add, Reported amounts, accounting policies, estimates, and required disclosures; Important limit, Read the auditor's report to determine 70 00:13:50.025 --> 00:13:53.627 which statements and periods the opinion covers. 71 00:13:53.627 --> 00:14:09.986 Public source, M D and A in a filing; What it can add, Management's explanation of results, liquidity, known trends, and uncertainties; Important limit, Management's explanation does not replace the statement amount or 72 00:14:09.986 --> 00:14:10.962 related note. 73 00:14:10.962 --> 00:14:27.396 Public source, Earnings release; What it can add, Timely results, management-selected highlights, and reconciliations for some non-GAAP measures; Important limit, A release furnished as a Form 8 K exhibit is not thereby 74 00:14:27.396 --> 00:14:30.473 part of the audited financial statements. 75 00:14:30.473 --> 00:14:46.607 Public source, Earnings call; What it can add, Prepared remarks and answers to analysts' questions about results, strategy, and expectations; Important limit, The discussion may include estimates and forward-looking 76 00:14:46.607 --> 00:14:51.109 statements and does not establish an accounting requirement. 77 00:14:51.109 --> 00:15:07.468 Public source, Investor presentation; What it can add, Strategy, operating measures, and management's view of the business; Important limit, The presentation may use measures or groupings that differ from the financial 78 00:15:07.468 --> 00:15:08.294 statements. 79 00:15:08.294 --> 00:15:24.503 Public source, Company investor website; What it can add, Access to filings, releases, presentations, recordings, and governance materials; Important limit, Hosting a document does not determine whether it was filed, 80 00:15:24.503 --> 00:15:26.904 audited, or prepared under GAAP. 81 00:15:26.904 --> 00:15:37.848 A call or presentation can help explain why management believes an amount changed. It cannot change the amount the company reported in its financial statements. 82 00:15:37.848 --> 00:15:50.092 A third-party transcript can make a call searchable, but it should be checked against a company recording or transcript before relying on exact wording. Find the company's report. 83 00:15:50.092 --> 00:16:02.130 The S E C makes filings available through EDGAR, its Electronic Data Gathering, Analysis, and Retrieval database. A company may also publish the report on its investor website. 84 00:16:02.130 --> 00:16:10.202 The filing source packet provides downloadable report copies, data files, and selected extracts with policy summaries. 85 00:16:10.202 --> 00:16:22.788 Use the full report for navigation practice; use the extracts when you need help or an offline reference. An EDGAR filing index identifies one submission and lists the documents in it. 86 00:16:22.788 --> 00:16:31.816 For a Form 10 K, follow the document whose Type is 10 K to open the annual report. Exhibits in the same list are separate documents. 87 00:16:31.816 --> 00:16:45.633 Their presence in the submission does not make them part of the annual report or the audited financial statements. Apply the filing index to Apple. This image shows the top of Apple's 2025 filing index. 88 00:16:45.633 --> 00:16:56.304 The first row under Document Format Files identifies the annual report by its 10 K description and type. The index identifies this filing with these fields: 89 00:16:56.304 --> 00:17:18.957 Filing field, Company; Apple example, Apple Inc. Filing field, Form; Apple example, 10 K. Filing field, Period of report; Apple example, September 27, 2025. Filing field, Filing date; Apple example, October 31, 2025. 90 00:17:18.957 --> 00:17:30.912 The exact filing identifier is printed in the written chapter. The exact company identifier is also printed there. 91 00:17:30.912 --> 00:17:40.104 The S E C calls the filing identifier an accession number and the company identifier a Central Index Key, or C I K. 92 00:17:40.104 --> 00:17:56.009 A C I K identifies a legal registrant across its S E C filings, even if that registrant changes its name or ticker. Facebook Inc. and Meta Platforms, Inc., for example, appear under C I K 0001326801. 93 00:17:56.009 --> 00:18:08.558 A corporate reorganization can create a new registrant and a new C I K. Alphabet's formation did that, so Google Inc. and Alphabet Inc. do not share a C I K. 94 00:18:08.558 --> 00:18:25.023 The accession number identifies one submission by the registrant. A filing date is the date a company submits the report to the S E C. The period of report is the reporting date or period the filing covers. 95 00:18:25.023 --> 00:18:33.975 Neither field identifies the period of every amount inside because statements often include comparative amounts. 96 00:18:33.975 --> 00:18:51.479 Apple, for example, submitted this Form 10 K on October 31, 2025, for a fiscal year that ended September 27, 2025. An amended filing, identified by a form such as 10 K slash A, requires a separate check of what changed. 97 00:18:51.479 --> 00:19:05.066 Read its explanation and identify the amended items. A later amendment may address only one part of the report; do not assume that every earlier figure has been replaced. 98 00:19:05.066 --> 00:19:20.812 Compare the original and amendment when both bear on the question. Check your understanding. You need Apple's inventory balance at September 27, 2025. Apple filed the Form 10 K on October 31, 2025. 99 00:19:20.812 --> 00:19:25.128 Does the later filing date make this the wrong report? 100 00:19:25.128 --> 00:19:41.355 Pause to consider your answer. Here is the explanation. No. September 27 is the date of the balance reported in the financial statements. October 31 is the date Apple submitted the Form 10 K to the S E C. 101 00:19:41.355 --> 00:19:55.434 Follow the statement headings. Form 10 K prescribes four Parts and numbered Items for domestic operating companies. An Item is a numbered disclosure requirement within the form. 102 00:19:55.434 --> 00:20:09.752 Companies prepare their own information within that structure, and a form may permit an item to be omitted, marked not applicable, or incorporated by reference from another filing. 103 00:20:09.752 --> 00:20:18.024 Use the report's table of contents and heading links to see how that company satisfied each requirement. 104 00:20:18.024 --> 00:20:30.877 Form 10 K part one; Main contents, Business, risks, and other company information; How it helps a reader, Understand the business and relevant risks. 105 00:20:30.877 --> 00:20:48.820 Form 10 K part two; Main contents, Market information, management discussion, statements, and controls; How it helps a reader, Follow the numbered items to management's analysis, the statements, and controls. 106 00:20:48.820 --> 00:21:03.139 Form 10 K part three; Main contents, Directors, governance, compensation, and ownership; How it helps a reader, Follow any references to separately filed information. 107 00:21:03.139 --> 00:21:18.408 Form 10 K part four; Main contents, Exhibits and financial statement schedules; How it helps a reader, Identify supporting documents without confusing them with the main report. 108 00:21:18.408 --> 00:21:32.279 Item 7 contains Management's Discussion and Analysis, or M D and A. Item 8 contains the financial-statement set and related reports. Item 9A addresses controls and procedures. 109 00:21:32.279 --> 00:21:48.685 Their purposes differ even when they discuss the same accounting amount. These item numbers come from Form 10 K, not from Apple's choice of headings. The S E C's Form 10 K lists the required Parts and Items. 110 00:21:48.685 --> 00:22:02.952 Search can help locate a statement title or account label, but inspect the heading around each result. A term may appear in the statements, a note, M D and A, or a risk discussion. 111 00:22:02.952 --> 00:22:08.976 The heading and surrounding text tell you what the search result can answer. 112 00:22:08.976 --> 00:22:24.540 Apply the structure to Apple. Suppose you need Apple's accounts payable balance at September 27, 2025. In the Apple 2025 Form 10 K, follow the table of contents to Item 8, Financial Statements and Supplementary Data. 113 00:22:24.540 --> 00:22:38.735 Within Item 8, the consolidated balance sheets contain the Accounts payable row. The statement heading supplies the entity, scale, and date needed to interpret the amount. Check your understanding. 114 00:22:38.735 --> 00:22:53.867 A search for accounts payable leads to Apple's liquidity discussion in M D and A. What source should establish the reported balance at September 27, 2025? Pause to consider your answer. Here is the explanation. 115 00:22:53.867 --> 00:22:59.991 Use the Accounts payable row and complete heading in the consolidated balance sheets. 116 00:22:59.991 --> 00:23:11.304 M D and A can help explain liquidity and changes in working capital, but it does not replace the statement row as the direct source for the reported balance. 117 00:23:11.304 --> 00:23:21.910 Notice disclosures that can change the analysis. The statement row and accounting-policy note are not the whole financial statement package. 118 00:23:21.910 --> 00:23:38.197 Other notes may identify later events, relationships, agreements, concentrations, or parts of the business that change how a reader interprets an amount. These disclosures do not all follow the same accounting rule. 119 00:23:38.197 --> 00:23:50.924 Separate later evidence from a new event. A subsequent event occurs after the balance-sheet date but before the financial statements reach the applicable issuance date. 120 00:23:50.924 --> 00:24:04.560 The timeline below separates the reporting date from that evaluation window. An event inside the window still must be connected to the condition that existed at the reporting date. 121 00:24:04.560 --> 00:24:19.814 Timeline. December 31 is the reporting date. The company had a pending lawsuit at that date. The lawsuit settled on January 18, during the evaluation window. The statements were issued on March 1. 122 00:24:19.814 --> 00:24:28.920 Because the claim arose before year-end, the settlement gives evidence about a condition that existed on December 31. 123 00:24:28.920 --> 00:24:39.692 Suppose the company was defending a major lawsuit at December 31 and reached a settlement on January 18 for an amount different from the liability it had estimated. 124 00:24:39.692 --> 00:24:50.136 The events that gave rise to the claim occurred before December 31. The settlement therefore provides additional evidence for measuring the year-end liability. 125 00:24:50.136 --> 00:25:04.587 A S C Topic 855, Subtopic 10, Section 55, paragraph 1(a) gives this example; the guidance for loss contingencies determines the liability's recognition and measurement. A January event can instead create a new condition. 126 00:25:04.587 --> 00:25:13.454 A fire at a facility that was operating normally on December 31 does not, by itself, change the condition of that facility at year-end. 127 00:25:13.454 --> 00:25:20.023 The company does not adjust the December 31 amount merely because the fire occurred before issuance. 128 00:25:20.023 --> 00:25:28.759 A material event may still require a note describing its nature and financial effect, or stating that the effect cannot be estimated. 129 00:25:28.759 --> 00:25:35.393 A S C Topic 855, Subtopic 10, Section 25, paragraph 1, 25-3, and 50-2 establish these basic branches. 130 00:25:35.393 --> 00:25:47.479 The subsequent-events guidance identifies which period contains the condition; the guidance for the affected account determines how to measure any adjustment. Check your understanding. 131 00:25:47.479 --> 00:26:00.025 A company settles a lawsuit after year-end. What fact determines whether the settlement provides evidence about the year-end liability? Pause to consider your answer. Here is the explanation. 132 00:26:00.025 --> 00:26:12.177 Determine when the events that gave rise to the claim occurred. If they occurred before the balance-sheet date, the settlement can provide evidence for measuring the year-end liability. 133 00:26:12.177 --> 00:26:19.008 A claim arising from a new event after year-end does not change the condition at the balance-sheet date. 134 00:26:19.008 --> 00:26:31.094 Recognize other disclosures that affect interpretation. Related-party transactions identify dealings in which control or influence may affect the terms. 135 00:26:31.094 --> 00:26:46.362 The note identifies the relationship, transactions, dollar amounts, and amounts due to or from related parties. Commitments and contingencies describe future agreements and uncertain outcomes. 136 00:26:46.362 --> 00:26:59.323 Signing an agreement does not automatically create a liability for the full future exchange. Unit 3 develops the recognition and measurement of loss contingencies. 137 00:26:59.323 --> 00:27:16.419 Risks and concentrations may identify dependence on a customer, supplier, market, or estimate that leaves the company vulnerable to severe near-term effects. A securities risk factor covers broader investment risks. 138 00:27:16.419 --> 00:27:31.368 Segment disclosures show how management views parts of the business and reconcile required segment information with consolidated amounts. Interim reports cover periods shorter than a year. 139 00:27:31.368 --> 00:27:40.512 Read the exact quarter and year-to-date headings; one quarter is not automatically one-fourth of the annual result. 140 00:27:40.512 --> 00:27:49.584 The written chapter links an optional reading that develops subsequent events and the other disclosure families introduced here. 141 00:27:49.584 --> 00:28:04.175 Read the amount in context. A statement amount must be read with the statement title, reporting entity, account label, date or period, currency, scale, and comparative column. 142 00:28:04.175 --> 00:28:21.600 Copying the digits alone can change the meaning. Apply the statement context to Apple. The statement excerpt below contains the Inventories row and its column headings from Apple's consolidated balance sheets. 143 00:28:21.600 --> 00:28:41.856 Apple Inc. consolidated balance sheets: United States dollars in millions, Inventories; September 27, 2025, 5,718; September 28, 2024, 7,286. 144 00:28:41.856 --> 00:28:51.842 The 2025 figure means 5,718 million dollars, or 5,718,000,000 dollars. Copying only 5,718 drops information needed to interpret it. 145 00:28:51.842 --> 00:29:04.800 Apple's annual accounting period uses a fiscal year that ends on the last Saturday of September; consequently, Apple's financial statements contain either 52 or 53 weeks. 146 00:29:04.800 --> 00:29:17.225 That explains the different September dates in these headings. Other companies use different year-ends; "2025" does not identify the same period for every company. 147 00:29:17.225 --> 00:29:30.717 Inventory is a balance at a stated date, while revenue describes activity over a stated period. The complete heading tells the reader which kind of amount the statement reports. 148 00:29:30.717 --> 00:29:46.038 The reporting entity is the business or group whose financial information the statements describe. Apple's consolidated statements include Apple Inc. and the subsidiaries within its consolidated group. 149 00:29:46.038 --> 00:29:53.203 The word consolidated tells you that the figures cover the group rather than the parent alone. 150 00:29:53.203 --> 00:30:05.170 Without its row label, column date, currency, scale, and reporting entity, 5,718 could describe a different account, period, company, or unit of measurement. 151 00:30:05.170 --> 00:30:17.290 The same comparative amount may also appear in more than one year's filing. The complete statement heading distinguishes those cases. Check your understanding. 152 00:30:17.290 --> 00:30:31.544 A colleague records 7,286 as Apple parent-company inventory at September 27, 2025. Which parts of that description need correction? Pause to consider your answer. Here is the explanation. 153 00:30:31.544 --> 00:30:47.552 The 7,286 amount belongs to September 28, 2024, and the table covers the consolidated group, not the parent alone. The requested 2025 column reports 5,718. Both amounts are in millions of United States dollars. 154 00:30:47.552 --> 00:30:53.040 Correct the date and entity description as well as preserving the scale. 155 00:30:53.040 --> 00:31:02.066 Connect a reported amount to its accounting policy. An accounting policy identifies a principle or method used to prepare the statements. 156 00:31:02.066 --> 00:31:16.034 The relevant policy depends on the reported information and the question being asked. An inventory policy may identify the cost-assignment method. A revenue policy may explain when the company recognizes revenue. 157 00:31:16.034 --> 00:31:26.905 A property and equipment policy may identify the measurement basis and depreciation method. A receivables policy may explain how the company estimates its allowance. 158 00:31:26.905 --> 00:31:37.776 These policies affect different parts of the statements and notes; they are not limited to inventory. A policy differs from an estimate used in applying that policy. 159 00:31:37.776 --> 00:31:51.216 For example, a property note may identify straight-line depreciation as the method, an asset's useful life as an estimate, and the asset's location as a business fact. A single note can contain all three. 160 00:31:51.216 --> 00:31:59.636 Apply the policy distinction to Apple. Apple discloses its inventory method in Note 1, Summary of Significant Accounting Policies. 161 00:31:59.636 --> 00:32:13.173 Under the Inventories heading, the company states that it measures inventories using first in, first out. Under first in, first out, the costs of the earliest purchases are assigned to the earliest goods sold. 162 00:32:13.173 --> 00:32:20.816 The policy identifies a cost-assignment method; it does not prove the physical order in which goods leave a warehouse. 163 00:32:20.816 --> 00:32:33.058 The auditor's conclusion that the statements are presented in accordance with United States generally accepted accounting principles does not identify that method. The specific policy does. 164 00:32:33.058 --> 00:32:46.918 Later chapters develop the inventory calculations. Check your understanding. A company says that a machine is in Ohio and has an estimated five-year useful life. Have those facts identified its depreciation method? 165 00:32:46.918 --> 00:32:59.160 Pause to consider your answer. Here is the explanation. No. The location is a business fact and the useful life is an estimate. You still need the policy that names the depreciation method. 166 00:32:59.160 --> 00:33:15.250 Determine what the filing can establish. An explanation of reported information may include several points: an amount, units, date, reporting entity, accounting policy, or conclusion about how the policy was applied. 167 00:33:15.250 --> 00:33:25.232 Each point must be connected to the part of the filing that can establish it. A correct amount does not make the other points correct. 168 00:33:25.232 --> 00:33:35.810 If the filing omits the underlying transaction records, it also may not settle whether a disclosed policy was applied correctly to every item. 169 00:33:35.810 --> 00:33:52.050 An artificial intelligence (A I) tool may suggest a filing location or draft an answer. Apply the same tests to its answer as to a person's draft. Open the cited document, inspect the context, and check each assertion. 170 00:33:52.050 --> 00:34:03.000 A fluent explanation cannot supply a missing transaction record. You can complete every exercise here directly from the filing without an A I tool. 171 00:34:03.000 --> 00:34:14.867 Apply the same questions to other accounts. Every reported account raises the same starting questions about the amount, date or period, units, entity, and relevant disclosures. 172 00:34:14.867 --> 00:34:23.228 Inventory, revenue, and property and equipment illustrate how the answers differ; they are not the only applicable accounts. 173 00:34:23.228 --> 00:34:32.667 For any account, the statement supplies the reported amount and its headings, while notes may supply related policies, estimates, or detail. 174 00:34:32.667 --> 00:34:38.736 Working backward from a reported amount is one way to check your accounting understanding. 175 00:34:38.736 --> 00:34:53.030 Ask which transactions could change the amount and which records and calculations would connect those transactions to the statements. Working backward is not a required step in every financial statement analysis. 176 00:34:53.030 --> 00:35:01.728 It connects the reported information to the accounting cycle, and the underlying records usually are not part of a public filing. 177 00:35:01.728 --> 00:35:22.598 Illustrative account, Inventory; Statement amount, Balance sheet; Time represented, At a date; Related disclosure in these examples, Cost-assignment method, such as first in, first out; Evidence needed to test individual 178 00:35:22.598 --> 00:35:29.049 items, Quantity records, purchase costs, and inventory calculations. 179 00:35:29.049 --> 00:35:49.824 Illustrative account, Revenue; Statement amount, Statement of operations; Time represented, Over a period; Related disclosure in these examples, When control transfers to the customer; Evidence needed to test individual 180 00:35:49.824 --> 00:35:57.508 items, Contracts, shipment or service evidence, invoices, and accounting entries. 181 00:35:57.508 --> 00:36:17.620 Illustrative account, Property and equipment; Statement amount, Balance sheet; Time represented, At a date; Related disclosure in these examples, Measurement basis, depreciation method, and useful-life estimates; 182 00:36:17.620 --> 00:36:29.952 Evidence needed to test individual items, Asset register, acquisition records, useful-life support, and depreciation calculations. 183 00:36:29.952 --> 00:36:34.649 The filing establishes each reported amount and disclosed policy. 184 00:36:34.649 --> 00:36:50.258 Testing the policy's application requires different underlying evidence for each account: inventory records for inventory, contracts and fulfillment evidence for revenue, and asset records for property and equipment. 185 00:36:50.258 --> 00:37:01.821 The audit opinion on the statements as a whole does not eliminate those account-level differences. Apply the records question to NIKE. Check your understanding. 186 00:37:01.821 --> 00:37:17.574 NIKE reports property and equipment net of accumulated depreciation and discloses straight-line depreciation. What records would you need to determine whether depreciation for a particular asset was recorded correctly? 187 00:37:17.574 --> 00:37:33.473 Pause to consider your answer. Here is the explanation. You would need the asset's acquisition cost, date available for use, estimated useful life and residual value, depreciation calculation, and related ledger entries. 188 00:37:33.473 --> 00:37:41.422 Those records connect the disclosed policy to the expense and accumulated depreciation recorded for the asset. 189 00:37:41.422 --> 00:37:55.152 An external reader generally cannot inspect these internal records, so the public filing alone usually cannot establish whether depreciation for that particular asset was recorded correctly. 190 00:37:55.152 --> 00:38:09.664 Recognize the reporting system. Domestic operating companies generally use Form 10 K for annual reporting, Form 10 Q for interim reporting, and Form 8 K for specified events and current information. 191 00:38:09.664 --> 00:38:19.632 Not every S E C registrant uses that set. A foreign private issuer may use Form 20 F, and an eligible Canadian issuer may use Form 40 F. 192 00:38:19.632 --> 00:38:35.097 Check the form, reporting period, accounting framework, and currency rather than assuming that every annual filing is a US-dollar Form 10 K prepared in accordance with United States generally accepted accounting 193 00:38:35.097 --> 00:38:50.928 principles. The optional reading How S E C reporting forms developed explains the reporting chronology, former small-company forms, foreign-issuer forms, and proposed changes in more detail. Check your understanding. 194 00:38:50.928 --> 00:39:04.341 A Canadian company's annual filing is a Form 40 F. Does the absence of a Form 10 K prove that its annual report is missing? Pause to consider your answer. Here is the explanation. No. 195 00:39:04.341 --> 00:39:15.408 An eligible Canadian issuer may report on Form 40 F. Inspect the company's actual filing and reporting period before deciding what evidence is missing. 196 00:39:15.408 --> 00:39:33.033 Keep the document and its copies connected. The filed H T M L report preserves the company's headings, tables, and links. A P D F created from that page fixes a layout, but its page breaks may not match the filing. 197 00:39:33.033 --> 00:39:51.070 An excerpt prepared for a class can omit a heading or footnote, while a Markdown translation can flatten table relationships. Those changes can alter the meaning of a copied amount even when the digits remain unchanged. 198 00:39:51.070 --> 00:40:06.306 The packet supplies complete report copies, selected extracts, and data files. A matching filename or an A I-generated citation does not establish that a copy matches the filed version. 199 00:40:06.306 --> 00:40:16.272 The company, accession number, reporting period, and relevant passage reveal whether the copy represents the same filing. 200 00:40:16.272 --> 00:40:31.536 The written chapter links an optional reading about the history of S E C reporting forms and tagged data. It explains how an Inline X B R L fact connects to the displayed statement. 201 00:40:31.536 --> 00:40:50.332 Apple inventory evidence. Use the balance sheet and inventory policy already examined. Decide what each source can establish and where the conclusion requires information outside the public filing. Apple revenue. 202 00:40:50.332 --> 00:41:06.645 Use Apple's 2025 Form 10 K. Locate Total net sales for fiscal 2025 and its 2024 comparative. Then find Note 2, Revenue, and determine how recognition differs for Products and Services. 203 00:41:06.645 --> 00:41:13.560 Revenue enters the financial statements when the recognition criteria are met. 204 00:41:13.560 --> 00:41:24.425 NIKE property and equipment. Use NIKE's 2026 Form 10 K. Locate net property, plant, and equipment for May 31, 2026, and its comparative amount. 205 00:41:24.425 --> 00:41:40.684 Then find the related policy in Note 1 and identify the measurement basis, depreciation method, and useful-life ranges. Sources and further practice. The examples use Apple's 2025 Form 10 K, filed October 31, 2025. 206 00:41:40.684 --> 00:41:54.588 The relevant locations are the consolidated balance sheets, consolidated statements of operations, Note 1, and Note 2. The filing is evidence of Apple's reported amounts and policies. 207 00:41:54.588 --> 00:42:07.505 Current accounting requirements come from the governing accounting literature discussed in Reading 1-4. The NIKE exercise uses NIKE's 2026 Form 10 K, filed July 15, 2026. 208 00:42:07.505 --> 00:42:21.029 The relevant locations are the consolidated balance sheets and Note 1, Summary of Significant Accounting Policies. The S E C company-concept data was accessed September 11, 2026. 209 00:42:21.029 --> 00:42:32.729 For another application, use the Chapter 5 practice page. Its questions ask you to locate and interpret depreciation expense in Microsoft's annual report. 210 00:42:32.729 --> 00:42:42.758 They distinguish a period's expense from an accumulated balance and ask what a general policy can establish about individual assets. 211 00:42:42.758 --> 00:42:55.675 Return to the written chapter to open the complete filings and download the source packet. The end-of-chapter practice uses Apple revenue and NIKE property and equipment. 212 00:42:55.675 --> 00:43:05.400 The separate Chapter 5 practice page uses Microsoft depreciation disclosures. Attempt each question before opening its feedback.