Question

In teams, select a public company that interests you. Obtain the company’s most recent annual report on Form 10-K. The Form 10-K is a company’s annually required filing with the Securities and Exchange Commission (SEC). It includes the company’s financial statements and accompanying notes. The Form 10-K can be obtained either (a) from the investor relations section of the company’s website or (b) by using the company search feature of the SEC’s EDGAR database service found at www.sec.gov/edgar/searchedgar/companysearch.html.

Based on the information in the company’s most recent annual report, answer the following questions:

How much cash does the company have at the end of the most recent year?

What percentage of total current assets is cash during the most recent two years presented? Has this percentage increased, decreased, or remained the same during this period?

Review Management’s Annual Report on Internal Control Over Financial Reporting. Based on this information, answer the following questions:

Who has responsibility for establishing and maintaining adequate internal controls over a company’s financial reporting?

How is “internal control over financial reporting” defined in this report?

What is a material weakness?

Were any material weaknesses identified?

Answer 1

A sample solution based on eBay’s Form 10-K for the fiscal year ended December 31, 2016, follows:

1.

a.

$1,816 million (from balance sheet)

b.

20.5% ($1,816 ÷ $8,875) in 2016; 23.2% ($1,832 ÷ $7,904) in 2015. Cash as a percentage of total current assets has decreased.

2.

Management’s Annual Report on Internal Control Over Financial Reporting is included in the annual report as item 9A in the Form 10-K.

a.

Management, including the principal executive officer and principal financial officer

b.

Internal control is not explicitly defined in the annual report; however, the report does reference SEC rules. According to these rules, internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipt and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the financial statements.

c.

A material weakness is a deficiency in internal control such that there is a reasonable possibility that a material misstatement will not be prevented or detected on a timely basis.

d.

Yes. A material weakness was identified with regard to the controls that were intended to document and review facts and apply the proper tax accounting standards.