Cummins Past Five Years Of Financial Analysis

Since the turn of the century, financial statements have been a common topic among investors, accounting standards board members, and business professionals. Although Enron may be the most recognizable name when it comes to financial scandal, there have been many other similar cases throughout the 2000s. Some examples include companies such as WorldCom, Tyco, Freddie Mac, and AIG. Many of these scandals were made possible due to these companies’ complex financial statements. Over the past few years the FASB (Financial Accounting Standards Board) has been working diligently to put into place standards for financial statements that will hopefully improve their efficiency and effectiveness, thus eliminating shady occurrences in companies’ financial

A quote that perfectly sums up the problem that investors face when dealing with disclosures states, “The sheer quantity of financial disclosures has become so excessive that we’ve diminished the overall value of these disclosures” (KPMG, p.2). This was the case when examining Cummins past five years of financial statements. By comparing the number of pages in Cummins 10ks over the last five years, it can be seen that Cummins has eliminated over 20 pages of information since 2009. A large majority of this change is attributed to Cummins efforts over this time span to more efficiently convey their disclosures in a way that even inexperienced investors can understand. Although Cummins has made significant strides, there is still plenty of room for improvement. One way to reduce disclosure overload and complexity even further would be to utilize tables and graphics rather than lengthy textual formats to convey financial statements. A second possibility would be to only disclose risk factors that are unique to Cummins, rather than all of the risk factors affecting the entire industry as well. By utilizing either of these ideas, Cummins could enhance their financial statements even further for

Between 2006 and 2010, the FASB has adopted thirteen different disclosure requirements to their Accounting Standards Codification. By adding these requirements, they ensure that companies cannot mislead their investors, thus benefiting investors to make informed decisions. Although this change is viewed in a positive light, there are also different costs associated with stricter regulation of disclosures. The most prominent of these costs are associated with implementing such changes. By making changes to the FASB’s Accounting Standards Codification, companies now are forced to adhere to these changes. Often times in order to follow these changes companies are forced to hire experts in order to ensure they are following the new standards correctly. This can end up being both expensive as well as time consuming, which can be detrimental to a company’s