CFA Exam Study Guide with Complete and Verified Solutions

CFA Exam Study Guide with Complete and Verified Solutions 6 components of the Code of Ethics: - Answer️️ -+Act with integrity, competence, diligence, respect and in an ethical manner wit the public, clients, prospective clients, employers, employees, colleagues, and all participants in global markets +Place integrity of profession and interest of clients above all else +Use reasonable care and independent professional judgement when conducting investment analysis, making investment recommendations, taking investment action, and engaging in professional activities +Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession +Promote the integrity, and uphold the rules of, the capital markets +Maintain and improve 7 Standards of Professional Conduct: - Answer️️ -+Professionalism +Integrity of Capital Markets +Duties to Clients ©SOPHIABENNETT EXAM SOLUTIONS_2024/2025 Tuesday, September 3, 2024 10:30 AM Page | 2 +Duties to Employers +Investment Analysis, Recommendation and Action +Conflicts of Interest +Responsibilities of a CFA Member/Candidate A change in accounting estimates... - Answer️️ -Is a change due to new information and does not require old statements to reflect it A change in accounting principles... - Answer️️ -Requires restatement of prior financial statements A Priori Probability - Answer️️ -Comes from a formal reasoning and inspection process; an objective probability Absolute Yield Spread - Answer️️ -The difference between yields on two bonds; = Higher Bond Yield - Lower Bond Yield; Most commonly used; Shortcoming is it may always remain constant even as yield rise or fall ©SOPHIABENNETT EXAM SOLUTIONS_2024/2025 Tuesday, September 3, 2024 10:30 AM Page | 3 Accelerated Depreciation - Answer️️ -Applies depreciation more at the beginning of an assets life Accelerated Sinking Fund - Answer️️ -Allows the issuer the choice of retiring more than the amount of bonds specified in the sinking fund requirement Accounting Information Flow - Answer️️ -1. Journal record every transaction by order of date in the general journal 2. The general ledger sorts the entries in the general journal by account 3. An initial trade balance is prepared at the end of the period to show the balance of each account and adjustments are then made 4. Financial statements are made from the adjusted trial balances Accounting Warning Signs - Answer️️ -+Aggressive revenue recognition +Different growth rates of operating cash flow and earnings +Abnormal sales growth as compared to the economy, industry or peers +Abnormal inventory growth compared to sales growth *Could be signs of obsolete products +Boosting revenue with nonoperating income and nonrecurring gains +Delaying expense recognition ©SOPHIABENNETT EXAM SOLUTIONS_2024/2025 Tuesday, September 3, 2024 10:30 AM Page | 4 +Abnormal use of operating leases by lessees +Hiding expenses by classifying them as extraordinary or nonrecurring +LIFO liquidations +Abnormal gross margin and operating margin as compared to industry peers +Extending the useful lives of long-term assets +Aggressive pension assumptions +Year-end surprises +Equity method investments and off-balance-sheet special purpose entities +Other off-balance-sheet financing arrangements including debt guarantees Accrual Accounts - Answer️️ -+State the objective and context +Gather data +Process data +Analyze and interpret data +Report conclusions and recommendations +Update analysis Acquisition Method of Accounting for Business Combinations - Answer️️ -When the purchase price is