AT&T Financial Analysis: Accounting Systems and Ratios
This paper provides a comprehensive analysis of AT&T, one of the leading telecommunications services providers in the United States. The paper examines AT&T's accounting systems, including its cost accounting approach and recent reforms aimed at improving transparency for investors. It also reviews the company's internal controls, as defined by the AICPA, and the specific mechanisms AT&T uses to ensure the integrity of its financial reporting. A review of AT&T's key financial statements is followed by a ratio analysis covering liquidity, profitability, and solvency ratios for 2011 and 2012. The analysis concludes that while AT&T remained profitable, its short-term liquidity and long-term solvency position present notable risks for investors.
- Company Overview: AT&T's mission, competitors, and headquarters
- Accounting Systems: Cost accounting methods and recent accounting reforms
- Internal Controls: AICPA definition and AT&T's control mechanisms
- Financial Statement Review: Key financial statements and their purposes
- Ratio Analysis: Liquidity, profitability, and solvency ratio findings
- Conclusion: Investor risk assessment and solvency concerns
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What makes this paper effective
- The paper follows a logical, structured progression — moving from company background through accounting systems, internal controls, and financial statements to a quantitative ratio analysis — making it easy to follow.
- The ratio analysis section is grounded in computed data presented in a table, giving the argument an empirical foundation and allowing year-over-year comparisons.
- The paper integrates cited definitions from authoritative accounting texts (Albrecht et al., Lasher) to establish analytical frameworks before applying them to AT&T's data.
Key academic technique demonstrated
The paper demonstrates applied financial ratio analysis — a core technique in accounting and finance courses. By computing and interpreting liquidity, profitability, and solvency ratios from AT&T's actual financial statements, the author translates raw numbers into meaningful conclusions about the company's financial health and investor risk profile.
Structure breakdown
The paper is organized into six clearly delineated sections: a brief company overview establishing context; an explanation of AT&T's accounting systems and recent reforms; a discussion of internal controls referencing AICPA standards; a review of AT&T's key financial statements; a detailed ratio analysis supported by a data table; and a short conclusion offering an investor-focused verdict. The structure mirrors a standard corporate financial analysis report.
Company Overview
AT&T is a telecommunications services provider with operations not only in the United States but also in other parts of the world. This paper presents an analysis of the company, exploring its accounting systems and internal controls, as well as a brief review of its financial statements.
In many respects, AT&T can be regarded as an industry leader in the provision of wireless voice communications. The company states its mission as "to connect people with their world, everywhere they live and work, and do it better than anyone else" (AT&T, 2013). Some of the main competitors of AT&T in the Telecom Services industry include Verizon Communications Inc. and Sprint Nextel Corp. The company is currently headquartered in Dallas, Texas.
Accounting Systems
Accounting systems encompass all accounting approaches — both manual and computerized — that a company uses to gather, record, and analyze financial data. AT&T makes use of elaborate cost accounting and other industry-specific accounting systems to facilitate the analysis and reporting of financial management information. The company's cost accounting system enables it to record costs incurred in the delivery of services. By comparing these costs with planned or standard costs, AT&T can identify variances and institute the relevant corrective measures.
It is also important to note that AT&T has in recent times revamped its accounting system. Some of the changes the company made include the recognition of gains and losses in the year in which they occurred (Booton, 2011). Previously, those gains and losses, as Booton (2011) further points out, were "spread over a period of several years." The company has also made a decisive move toward enhancing the transparency of the information it presents to investors.
Internal Controls
The American Institute of Certified Public Accountants (AICPA), according to Albrecht, Stice, and Stice (2010), defines internal controls "as the policies and procedures established to provide reasonable assurance that specific entity objectives will be achieved." In addition to protecting the interests of both creditors and investors, internal controls also help managers run their organizations in a more effective and efficient manner.
Like many other publicly traded companies, AT&T has put in place a variety of measures designed to guarantee the integrity of its financial statements. For instance, AT&T has a committee that obtains and reviews internal auditor reports. Among other things, this committee periodically undertakes a review of issues related to the presentation of financial statements and the application of accounting principles (AT&T, 2013). Other measures that AT&T takes to enhance the integrity of its financial statements — while simultaneously meeting profitability and operational targets — include crosschecking of payrolls, implementation of vehicle policy, and proper tracking of fixed assets. With regard to fixed assets, the company periodically verifies both the existence and condition of assets such as vehicles and machinery.
Conclusion
From an investor's point of view, AT&T is a risky company to invest in. In addition to being unable to meet its short-term obligations should they fall due, AT&T's long-term solvency is also in question. Although the company is currently profitable, it may find it difficult to access funds for expansion from creditors going forward.
References
Albrecht, W. E., Stice, E. K., & Stice, J. D. (2010). Financial Accounting: Concepts and Applications (11th ed.). Mason, OH: Cengage Learning.
AT&T. (2013). AT&T Company Information. Retrieved April 24, 2013, from AT&T website: http://www.att.com/gen/investor-relations?pid=5711
Booton, J. (2011, January 13). AT&T to take $2.7 billion charge in 4Q to revamp accounting system. Retrieved April 25, 2013, from FOXBusiness website:
Lasher, W. R. (2010). Practical Financial Management (6th ed.). Mason, OH: Cengage Learning.
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