Verizon MD & A Summary

Accounting policies are essential for adequately understanding the information provided in financial statements. An entity as required by GAAP, should present as an integral part of the financial statement a statement identifying the accounting policies adopted and followed by the reporting entity (Kieso, Weygandt & Warfiled, 2015, p.1391). Accounting policies are the specific accounting methods an organization presently uses and considers most appropriate to present its financial statements fairly. The disclosing of accounting policies must incorporate important conclusions as to the relevance of principles concerning the recognition of revenue and allocation of asset costs to current and future periods (FASB). Identifying accounting policies

answers questions such as the method of depreciation used, valuation method of inventory, and the amortization of intangibles - as accounting standards allow different treatments for the same transaction. Any changes in the accounting policies must also be disclosed if the change is material to the current period or is reasonably expected to have a material effect in a later period. Accounting policies adopted by an organization significantly affects the presentation of its financial position, cash flows, and results of operations. Therefore, clearly outlining accounting policies allow users of these financial statements to compare financial information with other entities within the same industry.
In reviewing Verizon’s 2015 Annual Report, management expressed their depreciation method concerning plant, property, and equipment. As stated in the annual report, Verizon records plant, property, and equipment at cost, depreciating using the straight-line method over the estimated useful life of the asset. By disclosing the depreciation method, users of Verizon’s financial statements are readily able to compare accurately financial statement figures with another companies’ as differences in net income could simply be the utilization of depreciation approaches. Secondly, Verizon’s noted an update to accounting standard. In particular, the company adopted first quarter of 2016 the standard update that provides that a liability related to an unrecognized tax benefit should be offset against same jurisdiction deferred tax assets for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed (Verizon, 2015, p.31).
Verizon’s MD & A depicts a comparison of growth of prior years (revenue and services), trends and future prospects of investments.

Verizon experienced revenue growth in their Wireless business of 6.8% in 2016 compared to 2015 (Verizon, 2015, p. 7). The growth was attributed to the demand for smartphones, tablets, and other internet devices. A 3.2% increase in retail postpaid connections compared to 2012 with smartphones comprising 62% of retail postpaid phone base at December 31, 2016 compared to 50% at December 31, 2015; 2015 postpaid smartphones activations represented 75% of phones activations compared to 72% in 2015 (Verizon, 2015, p. 11). From a potential investor’s perspective, growth would indicate Verizon is a stable business, expected to continue to increase profits markedly in the future, as well as profitable reinvestment opportunities for its own retained earnings. Trends included in the MD & A cited intensity in regards to competition with traditional and non-traditional service providers pursuing increased market share. With investments in innovative technology like wireless networks, high-speed fiber and cloud services Verizon believes their company will be positioned at the center of future growth trends. Verizon’s ability to understand and identify trends that might impact their organization provides a useful starting point to meet changing market demands from its resources and seek partners who offer desirable products, advanced technology or manufacturing

capacity to sustain their existence, as a result provides a positive outlook to potential investors. In addition to investment in growth, Verizon differentiates itself from competitors by providing enhanced communications experiences and focusing on fundamentals of running a successful business through operating excellence and financial discipline. Future prospects are favorable as Verizon believes its investment in its capabilities and in the markets they serve will position the company to produce a long-term return for shareowners, viability of the company, and society. Favorability is guided by their commitment to core values of integrity, respect, performance excellence and accountability (Verizon, 2015, p. 9). From an investor’s perspective, Verizon’s commitment to focus on their trademark ensures a strong customer base.
Segmented information must accompany financial statements for the purpose of giving creditors and investors information regarding the financial outcomes and position of the most vital departments and divisions of a company.

According to GAAP, an organization is required to classify any department or division engaged in operating activities from which it may produce income and incur expenditures, wherein separate financial information is available, and whose results are frequently reviewed by the entity's chief operating officer for performance assessment and resource allocation decisions. An organization must report segments if the aggregate results of two or more operating segments have similar product lines, services, processes, customers, distribution methods, and regulatory environments; has at least 10% of the revenues, 10% of the profit or loss, or 10% of the identifiable assets of the entity, or if the total revenue of the segments. After quantitative materiality tests to determine whether the segment is deemed significant and reportable, two additional factors must be considered. The segmented results must first, equal or exceeds 75% of the entity's total revenue. FASB also recommends that companies be limited to disclose ten segments. The segmented information has both its advantages and disadvantages, depending upon the use of the

information.
An advantage that segmented data is that it provides transparency because it reveals which divisions are profitable and which are straining the bottom line. Another advantage of segmented data is that it allows investors to gauge the potential fluctuations that could the overall performance. For example, if an organization reports higher earnings than projected, segmented information provides the origin. A third advantage to segmented information is that it provides a window into the future outcomes. A company may be profitable overall as a result of one segment; however other divisions may be underperforming that could eventually result in losses, segmented data will be an indicator.
Disadvantages include a central focus on short-term results, data manipulation, and greater competitive risk. A central focus on short-term results may cause pressure from stakeholders to dispose of underperforming segments to improve short-term earnings. In addition, segmented data allows management the ability manipulated or mask unprofitable operations as a result of how the segments are identified. Lastly, segmented data exposes organizations to greater competitive risk as the information allows outsiders insight into sensitive information and may result in an organization losing its negotiating edge in an acquisition.
Although segmented data has significant disadvantages, the advantages outweigh the disadvantages in that it provides financial statements users the ability to view operations from management’s viewpoint. Users also have relevant data that may be utilized to better understand operations and the business potential cash flow. Verizon has two reportable segments (Wireless and Wireline) which are managed as strategic business unties and organized by products and services. Wireless and Wireline are measured and evaluated based on segment operating income. Earnings before interest, taxes, depreciation and amortization are not measured by GAAP in order to evaluate operating profitability on a more variable cost basis (excludes depreciation and amortization expenses related primarily to capital expenditures and acquisitions that occurred in prior years) (Verizon, 2015 p. 17). Non-operational items such as investments in unconsolidated businesses, pension and other employee benefit related costs and lease financing are not allocated