1. List and describe the four basic financial statements included in a corporate annual report.
The balance sheet shows the financial position—assets, liabilities, and stockholders' equity—of the firm on a particular date, such as the end of a quarter or a year.
The income statement presents the results of operations—revenues, expenses, net profit or loss and net profit or loss per share—for the accounting period.
The statement of shareholders' equity reconciles the beginning and ending balances of all accounts that appear in the shareholders' equity section of the balance sheet.
The statement of cash flows provides information about the cash inflows and outflows from operating, investing, and financing activities during an accounting period.

2. In a speech by Arthur Levitt, chairman of the SEC, he states: "Managing may be giving way to manipulation; Integrity may be losing out to illusion." Using examples, explain the meaning of this quotation.

Levitt is referring to earnings management, the practice of using accounting choices and techniques in such a way that earnings reports reflect what management wants the user to see, instead of the true financial performance of the firm. Five techniques are commonly used to create illusions according to Levitt. They are "Big Bath" restructuring charges, creative acquisition accounting, cookie jar reserves, misuse of materiality concept and incorrect revenue recognition.

3. Discuss the process FASB uses in writing Statements of Financial Accounting Standards.
The FASB uses a lengthy deliberation process that includes the following steps: 1. Introduction of topic on the FASB agenda. 2. Research and analysis of the problem.
3. Issuance of a discussion memorandum. 4. Public hearings. 5. Board analysis and evaluation. 6. Issuance of an exposure draft. 7.