Summary

The article “Building a better income statement” by Jagannath & Koller (2013) describes
financial Acuity as having a basic understanding of what drives a company's profits, and key
financial metrics are used. Jagannath & Koller (2013) were of the idea that the annual income
statement presented by a company should create transparency on the revenue and expense. This
way, the investors have an easy time understanding and interpreting the statement. The use of the
Generally Accepted Accounting Principle (GAAP) has made it difficult for investors to interpret
income and expenses recorded. Notably, some of the investors are forced to re-engineer the
official statements to understand and make valuation and assessment of the company's future
performance. Also, some of the world's biggest companies are reportedly presenting their income
statements to investors using the non-GAAP form. Jagannath & Koller (2013) suggest a revision
of the GAAP rule of reporting the income statement by dividing the report into recurring
operations income and non-operation income and expense. The second part would comprise of
non-recurring items. Such adjustments align with the accounting principles proposed by the

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Financial Accounting Standards Board (FASB) and the International Accounting Standards
Boards (IASB). The principle states that information regarding financial statements should be

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presented in a manner that disaggregates information such that a clear financial picture of the
entity is portrayed.

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“The Association between Components of Income Statement, Components of Cash flow
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Statement, and Stock Returns is an article by Dastgi, Sajadi, & Akhgar, (2010). Financial
reporting is done to attain financial Acuity to interested stakeholders such as investors to help
them in decision making. The income statement is regarded as one of the basic sources of
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information on investment decisions. In particular, the income statement has presented a

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challenge to bodies tasked with setting accounting standards to capture future income and cash
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flows. The cashflow statement captures information about how cash is earned or spend on
various activities such as paying dividends.

“The statement of cash flows: an indirect to direct conversion tool to enhance user understanding
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and analysis” is an article by Foster et al., (2012). The direct approach for reporting operating
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cash flows is highly recommended by the statement of Financial Accounting Standards (SFAS).
Although the indirect approach is widely used, Foster et al., (2012) use various tools to enable
users to develop components of the direct method from an indirect method, thereby enhancing
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user understanding.
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Discussion

Financial acumen is highly important in a company, and if possible, all employees within the
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various departments should understand what makes money for the company. Financial acumen
among the company employees determines if a company is successful. Training in financial
acumen means that company employees are in a position to make sound financial decisions. A
company is in operation to make a profit. All company operations are all directed towards
making a profit after the sale of services and products. Sound financial acumen within the
company creates a common goal within the company. This helps to increase the efficiency of

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 processes and reduce waste as all employees will work towards minimizing the cost and
increasing profit. Financial acumen helps a company by communicating a consistent financial
message among investors, staff, and management. This creates a uniform objective in the
company, which is to increase profitability. Every manager, staff, and investor knows that it is
their responsibility to help achieve the company's financial objective.

I have experience working in an organization where financial acumen was not supported. In the
organization, the finance department was the only one concerned with finance acumen. Other
departments, such as sales, had their projections and objectives. The organization had a
decentralized administration system where the departmental heads were responsible for all
decisions in their respective departments. Decisions were made internally without consultation
with other departments. The result was an increased cost in the company and duplication of
processes. For instance, the finance department used different software from the sales
department. The result was that the company had to pay different vendors for their software
products instead of minimizing costs through a single software. The departments were more
concerned with outperforming each other instead of working together for the company's common

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good.

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Sarbanes-Oxley Act

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The Sarbanes-Oxley Act of 2002 is also known as the public company accounting reform and
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investor protection act or the corporate and auditing accountability, responsibility, and
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transparency act. SOX are a federal law that established new requirements and expanded the
existing ones on all public company boards, management, and public accounting firms based in
the United States. Some sections of the law affect private companies, and they include
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deliberately tampering or destroying evidence to interfere with federal investigations. The law
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was created to increase penalties for various criminal activities and provide regulations on how
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public corporations should cooperate.

Compliance with SOX increases control awareness by documenting all controls, such as
operation manuals and personnel policies. The SOX act provisions contain comprehensive
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measures on how to deal with financial reporting, conflict of interest, corporate ethics, and
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establishment of criminal penalties. Enforcement of the SOX act requires all public companies
and corporations should hire independent auditors to review their accounting practices.
Companies involved in the auditing of public companies need to be registered with PCAOB (the
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body mandated to investigate and enforce compliance among accounting firms).

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References
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Jagannath, A., & Koller, T. (2013). Building a better income statement. McKinsey & Company.

Foster III, T. W., McNelis, L. K., & Smith, W. L. (2012). The statement of cash flows: an indirect
to direct conversion tool to enhance user understanding and analysis. Journal of accounting and
finance, 12(2), 94-119.

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 Dastgir, M., Sajadi, H. S., & Akhgar, O. M. (2010). The Association Between Components of
Income Statement, Components of Cash flow Statement and Stock Returns. Business
Intelligence Journal, 3(1), 9-21.

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