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The use of ratios is an integral part of financial statement analysis. Computing these ratios seems relatively simple when using the traditional format for financial statements. However, the proposed new financial statement format separates financial statement elements that were formerly grouped in close proximity on the financial statements. This may result in some elements being inadvertently omitted when the ratios are computed.
This project presents the results of an experiment in which students are presented with financial statements presented in both the traditional format and the proposed new format. Students enrolled in in Intermediate Accounting I, Intermediate Accounting II, and Auditing will be asked to compute profitability, liquidity, and solvency ratios for one set of financial statements with half the students receiving traditional statements and the other half new format statements. The results in these classes will be compared to determine if understanding of the new proposed financial statement format improves with increased education.
Edward R Walker, University of Central Oklahoma
Katherene P Terrell, University of Central Oklahoma
Robert Terrell, University of Central Oklahoma