CFA Level I, Financial Reporting & Analysis

CFA Level I, Financial Reporting & Analysis The statement of changes in equity - The statement of changes in equity reports the changes in the components of shareholders' equity over the year, which would include the retained earnings account. MD&A - Companies should disclose in management commentary any critical accounting policies that require management to make subjective judgements that may have a significant impact on reported financial results. These subjective judgements should be carefully reviewed because they may materially alter an analyst's conclusions about the future performance or financial position of a company. classified statement of financial position - Classified statements of financial position distinguish between current and non-current assets and liabilities. Classified statements are required under International Financial Reporting Standards unless a liquidity-based presentation provides more relevant and reliable information. A classified balance sheet is one that classifies assets and liabilities as current or non-current and provides a subtotal for current assets and current liabilities. A liquidity-based balance sheet broadly presents assets and liabilities in order of liquidity. IFRS Vs US GAAP - Significant differences still exist between IFRS and US GAAP, and in most cases, analysts will lack the information necessary to make specific adjustments to address these differences. As such, comparisons must be interpreted cautiously. Assessing Performance - Assessment of performance includes analysis of profitability and cash flow generating ability. The relationship between assets and liabilities is used to assess a company's financial position, not its performance. Statement of Changes in Equity - The statement of changes in equity reports the changes in the components of shareholders' equity over the year, which would include the retained earnings account. MD&A section of an annual report - Companies should disclose in management commentary any critical accounting policies that require management to make subjective judgements that may have a significant impact on reported financial results. These subjective judgements should be carefully reviewed because they may materially alter an analyst's conclusions about the future performance or financial position of a company. IFRS & IASB Structure - The Financial Accounting Foundation, not the IFRS, oversees FASB. IFRS Foundation trustees do appoint the members of the IASB. the Monitoring Board that oversees the IASB includes representatives from the European Commission, IOSCO, the Japan Financial Services Agency, and the US SEC. Analysts can best address the challenges of comparing financial statements prepared under US GAAP with those prepared under International Financial Reporting Standards (IFRS) - Monitoring changes in both sets of standards and interpreting cautiously. Significant differences still exist between IFRS and US GAAP, and in most cases, analysts will lack the information necessary to make specific adjustments to address these differences. As such, comparisons must be interpreted cautiously. Reports required by SEC - The annual report is not a requirement of the SEC. 10-K is required by the SEC A proxy statement is required by the SEC IFRS Conceptual Framework - The two fundamental qualitative characteristics that make financial information useful are relevance and faithful representation. Materiality relates to the level of detail of the information needed to achieve relevance and is thereby not a standalone characteristic. Process Data Phase - During the process data phase, an analyst will produce a variety of reports and documents based on the information collected. These may include common-size statements, ratios and graphs, forecasts, adjusted statements, and analytical results. SEC - The SEC is responsible for overseeing the PCAOB under the Sarbanes-Oxley Act of 2002. IFRS Foundation - Promoting the adoption of global financial reporting standards The joint conceptual framework project of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) guides the development of standards that are - The joint conceptual framework project aims to develop accounting standards based on principles in an attempt to achieve consistency in financial reporting approaches and judgments while trying to limit the range of acceptable answers. The joint conceptual framework project reflects the widespread recognition that coordination among global standard-setting bodies is better suited to global capital markets than the independent development of financial reporting standards within each country. The joint conceptual framework is designed to foster the development of principles-based standards. Expenses on the income statement may be grouped by - IAS No. 1 states that expenses may be categorized by either nature or function. What does it mean to classify by nature - Tax expense & interest expense are classification by nature What does it mean to classify by function - Cost of goods sold is a classification by function. Gross Margin = Gross Profit - Gross margin is revenue minus cost of goods sold. net income - Revenue - (Cost of goods + Other operating expenses + Interest expense + Tax expense) Under IFRS, ___ balance sheet presentation format is acceptable - A liquidity-based presentation can be used when it provides information that is reliable and more relevant. Entities that typically choose this format include banks.