Hello class, 

This week's discussion topic focuses on auditors reports and other important information for my chosen company, McDonald's 10-K Report

• For your SEC 10-K report, as you read the auditor's report, consider information identified as Critical Audit Matters (CAM). Are there any CAM items? What are they (use the section titles)?

The CAM item that is included on the auditor’s report is Unrecognized Tax Benefits (pg. 1). The section is written in two parts; the first describes the matter and the second explains how Ernst & Young LLP addressed the matter in the audit. This critical audit matter describes how the auditors found unrecognized tax benefits, including transfer pricing matters totaling $1,479.2 million at December 31, 2020.

Discussion Requirements

• What is the name of the auditor?

The name of the auditor is Ernst & Young LLP. They have served as McDonald’s auditor since 1964 (pg. 62).

• Looking at their signature, what city do you see?

Ernst & Young LLP are in Chicago, Illinois (pg. 62).

• The first page of the SEC 10-K is very standard and lists two key locations. Using this information, post the state of incorporation and the city and state of the corporate headquarters for your SEC 10-K.

Delaware is the state of incorporation for McDonald’s Corporation while corporate headquarters is in Chicago, Illinois (pg. 1).

• Returning to Item 8, near the auditor's report (this is the letter they sign, giving their opinion on whether the financial statements are fairly presented in adherence with U.S. GAAP), locate the letter regarding internal control. This letter is signed by the company's management. What are their names and titles? Some companies list all officers whereas others list only the chief executive officer (CEO) and the chief financial officer (CFO). The SEC only requires the signatures of the CEO and CFO.

On page 60 Management’s Assessment of Internal Control Over Financial Reporting can be found; however, there are no individual signatures. At the end of the letter, it is simply signed as McDonald’s Corporation. On the last page 69, all signatures are provided, including Corporate Executive Vice President and Chief Financial Officer Kevin M. Ozan and President, CEO and Director Christopher J. Kempczinski.

I am curious as if this is permissible and if other companies SEC 10-K Reports are similar.

• List the topic headings from the auditors' report on Critical Audit Matters. Examples might be Internal Control or Inventory or Goodwill Impairment.  Critical Audit Matters are near the end of the report. The report is a letter from the audit firm to the company Board of Directors

The Critical Audit Matter is on page 61-62 and is reported as Unrecognized Tax Benefits. Sub-topic headings include Description of the matter and How we addressed the matter in our audit.

-N

Good Evening Class,

Carmax, Inc 10-K

1. For your SEC 10-K report, as you read the auditor's report, consider information identified as Critical Audit Matters (CAM). Are there any CAM items? What are they (use the section titles)?  After reading Carmax's auditor report, I found one CAM item. The section title was "Assessment for the allowance for loan losses on core receivables". It describes how the company maintained an allowance for loan losses on core receivables for the net credit losses expected over the remaining contractual life of the managed receivables. (pg. 45)
2.  What is the name of the auditor? The auditor's name is KPMG LLP. (pg. 46)
3. Looking at their signature, what city do you see? Richmond, Virginia (pg. 46)
4. The first page of the SEC 10-K is very standard and lists two key locations. Using this information, post the state of incorporation and the city and state of the corporate headquarters for your SEC 10-K. CARMAX, INC. 12800 Tuckahoe Creek Parkway Richmond, Virginia. & United States Securities and Exchange Commission Washington, D.C. 20549 (pg. 1)
5. Returning to Item 8, near the auditor's report (this is the letter they sign, giving their opinion on whether the financial statements are fairly presented in adherence with U.S. GAAP), locate the letter regarding internal control. This letter is signed by the company's management. What are their names and titles? Some companies list all officers whereas others list only the chief executive officer (CEO) and the chief financial officer (CFO). The SEC only requires the signatures of the CEO and CFO.  This letter is signed by the CEO and CFO. William D. Nash, President and Cheif Executive Officer & Enrique N. Mayor-Mora, Senior Vice President and Cheif Financial Officer. (pg. 44) However, I noticed on the last page of the 10-K report, there are many more signatures consisting of many Directors as well as Cheif Accounting Officer. (pg. 90)
6. List the topic headings from the auditors' report on Critical Audit Matters. Examples might be Internal Control or Inventory or Goodwill Impairment.  Critical Audit Matters are near the end of the report. The report is actually a letter from the audit firm to the company Board of Directors.  Opinion on Internal Control Over Financial Reporting, Basis for Opinion, Definition and Limitation of Internal Control Over Financial Reporting. (pg. 47)