Helpful to have a directors and officers insurance policy when you get involved in a

directors board.

Fiduciary duty: avoiding conflicts of interest.

Ponzi scheme: getting into an investment where they pay you interest from money
generated from collectin it from others... but no real money is generating, only
circulating.

A claim for fraud accrues as the claim becomes enforacble i.e. when all elements of
the [claim] can be truthfully alleged in a complaint.’ ” […] In New York, “fraud
requires proof of” five elements: “[i] a material misrepresentation or omission of a
fact, [ii] knowledge of that fact's falsity, [iii] an intent to induce reliance, [iv]
justifiable reliance by the plaintiff, and [v] damages.” […]

Minutes/minits – protocol of a board meeting.

If something is missing from the minits, tell the secretary to amend the minutes, if
they don't want to record your statements and questions in the minutes, you better
leave the board...

RESTATEMENT: is more of a negative thing to do in companies, it means that your

accountants made mistake... can have negative reprocutions.. It can alert that you
had a false statement and can raise flags if you get sued.

AUDIT (revizija): is the auditor not in conflict of interest, what kind of methods he
is using, getting any reasurance of the auditor...

Auditor will also look for internal control over financial reporting.

What does D&O insurance carry for?

negligence, mistake, breache of fiduciary duty. Some things may not be covered(
something done really wrong)

Daubert standard is the general standard to get evidence to court. The Gate keeper
function: Federal rule of evidence 702.
Financial statement: balance sheet, income statement and footnote(they are in the
back of FS)

READ footnotes first of a FS!! Don't look at the numbers first, go to footnotes!

Balance Sheet: Assets, Liabilities, equity It shows the assets of moment

and time on the sheet.
Equity = Assets – Liabilities

Assets – 3 types:
Current: cash, marketable securities, acc. Receivable, inventory, prepaid expenses,
loans to shareholders – ANY ASSET THAT CAN BE CONVERTED INTO CASH IN
THE NEXT 12 MONTHS

fixed: Land, building, leasehold improvements, vehicles, machinery, but not

accumulated depreciation – ITS SOMETHING THAT YOU USE IN TRADE OR
BUSINESS

other: intangible assets (you can't hold, smell, but you know its there), security
deposits and due from affiliate or related parties – NOT INTENDED TO BE
CONVERTED INTO CASH WITHIN THE NEXT 12 MONTHS (non current assets)

goodwill is often the difference of value of what is paid for the business and the net
(book) value

Liabilities/obligations:
Current: ITEMS TO BE PAID WITHIN THE NEXT 12 MONTHS (OBLIGATIONS
PAID IN THE NEXT 12 MONTHS) – accounts payable/accured expenses, notes/loan
payable, taxes payable, loans from shareholders

long-term (non current): NOT EXPECTED TO BE PAID IN THE NEXT 12

MONTHS – Notes/loans payable – NON CURRENT portion, deferred income taxes
Equity: Components of equity depend upon how the business is organized and
capitalized,
3 main components, based upon what type the company is:

- Sole proprietorship:

- Corporation/corporate entity: common stock, additional paid in capital (PIC) and

retained earnings

**When you pay in common stock and you have excess/additional capital of par
value (of stock buying)

- Partnership:

INCOME STATEMENTS

5 Primary components:
- gross income/sales (total money you collected)
- direct costs/cost of goods sold (cost of the items that generated profit)
- gross profit (varies on location, size, demographics...)
- Operating expenses
- Income taxes

Net income = gross income – expenses

OPERATING INCOME = Gross profit – operating expenses

2 methods of accounting:

Cash and accrual!!

CASH is simpler: income is recorded when it's received and expenses are recorded
when they are paid. Almost always used for service businesses (accounting, law
firms, architects, builders...)
Accrual: whether the money is received or not BUT is depended whether the
services was provided or compounded and expenses are recorded when they are
incurred / paid or not!!
Almost always used when there is inventory!

Initial year: year when the business starts working

final year: last year of a business

Calendar year: accounting year encompassing 12 mo. That ends on Dec 31.

Fiscal year: an accounting year that encompasses 12mo that ends on any other date
other than dec 31.

Types of record maintained in the businesses.

- Sales journal : revenues that it include/made;
- purchase journal: not for product but for other expenses,
- cash receipt journal: actual .. that came in
- cash dispersment jou: all the checks that are actually dispersed
- Payroll journals: amount of salaries that are paid

The type and sophistication of accounting journals/records is greatly dependent

upon the method of accounting & the size & nature of the business.

Types of financial statements reports

Audit review compilation

-3 diff level od due diligence and responsibility on the accountant.

AUDIT Fin. Statem.: a test provided by an outsided accountant, that sais that the
income state. And balance sheet. Represent fairly the operation of the business.

The highest degree of assurance provided by independent/ outside accountant.

REVIEW statement: we are not swearing to this numbers and giving same level of
insurance as audit, but makes us confident that the numbers in business makes us
confident that…. It is given when an audit is not neceserally provided
COMPILATION fin. Stat.: no verification of any kind or dued diligence has been
performed. ‘’they just copy paste numbers… no verification of the numbers…’’

**Related party: anyone that is related and to determen the transaction between
those parties if they are fair and reasonable/ARMS LENGTH