For each item in the disclosure checklist, list the page or pages on which it appears in the financial statements. The financial statements are not the entire annual report. They start on page 62 of the 10-K, and run through page 120. If an item on the checklist is not applicable to the company, then simply put “N/A”. If it is applicable but does not appear in the financial statements, or is in the financial statements but not correctly, then briefly explain what the company has done wrong. By briefly, I mean a sentence, not a paragraph. If a disclosure item is related to the overall format or organization of the financial statements, then just note whether they’ve done it correctly. The disclosure checklist cannot be edited easily, so copy and paste each section into a Word file. Don’t assume that the company has done everything correctly, because it’s quite likely they have not. As one company not dissimilar to GE (I’ll call them “X”) responded some years ago when explaining why they weren’t going to correct something that we pointed out they were doing wrong, “We don’t have to do it correctly, because we’re X”.
Identify disclosures in the financial statements that you didn’t see listed in the disclosure checklist. Do you think that those additional disclosures help or hurt the reader’s ability to interpret the financial statements?
Identify anything in the financial statements that you found to be particularly confusing or hard to follow. Do you think that the company should have done a better job explaining those items, or do you think the duty falls on the reader to spend additional time and/or background research to solve those matters? Feel free to assume that you have at least as much knowledge as the typical informed financial statement user.
Read the auditor’s report on the financial statements (it appears right before the financial statements). The auditor lists and discusses some critical audit matters. What critical audit matters does the auditor identify? After reading what the auditor said about them, is your confidence that those items are correct in the financial statements higher, lower, or no different than before you read the audit report? Why?
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