PACCAR Inc. (PCAR: NasdaqGS) designs, manufactures, and distributes trucks and related aftermarket parts that are sold worldwide under the Kenworth, Peterbilt, and DAF nameplates. In 2013, the US SEC charged PACCAR for various accounting deficiencies that “clouded their financial reporting to investors in the midst of the financial crisis.” The SEC complaint cites the company’s 2009 segment reporting. Exhibit 4A presents an excerpt from the notes to PACCAR’s financial statements, and Exhibit 4B presents an excerpt from the management’s discussion and analysis (MD&A)

of PACCAR’s annual report.

1. Based on the segment data excerpted from the notes to the financial statements, was PACCAR’s truck segment profitable in 2009?

2. Based on the data about the truck’s gross margin presented in the MD&A, was PACCAR’s truck segment profitable in 2009?

3. What is the main difference between the note presentation and the MD&A presentation?

4. The SEC complaint stated that “PACCAR failed to report the operating results of its aftermarket parts business separately from its truck sales business as required under segment reporting requirements, which are in place to ensure that investors gain the same insight into a company as its executives.” Is the PACCAR situation an example of issues with financial reporting quality, earnings quality, or both?

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EXHIBIT 4A Excerpt from Notes to PACCAR's 2009 Financial Statements S. SEGMENT AND RELATED INFORMATION PACCAR operates in two principal segments, Truck and Financial Services. The Truck segment includes the manufacture of trucks and the distribution of relat- ed aftermarket parts, both of which are sold through a network of independent deal- ers.... The Financial Services segment is composed of finance and leasing products and services provided to truck customers and dealers.... Included in All Other is PACCAR's industrial winch manufacturing business. Also within this category are other sales, in- come and expenses not attributable to a reportable segment, including a portion of corporate expense. Business Segment Data ($ millions) Income before Income Taxes Truck All other Financial services Investment income 2009 $25.9 42.2 68.1 84.6 22.3 $175.0 2008 $1,156.5 6.0 1,162.5 216.9 84.6 $1,464.0 2007 $1,352.8 32.0 1,384.8 284.1 95.4 $1,764.3 EXHIBIT 4B Excerpt from MD&A of PACCAR's 2009 Annual Report Net sales and revenues and gross margins for truck units and aftermarket parts are pro- vided below. The aftermarket parts gross margin includes direct revenues and costs, but excludes certain truck segment costs.