Financial Statement Analysis and Financial
Reporting Questions and Answers
What is financial statement analysis used for?
Utilized to inform economic decisions by revealing past performance and current financial positions.
What reflects past performance in financial statements?
Past performance (Dynamic) is reflected in the income statement, covering a specific period.
What illustrates the current status in financial statements?
Current status (Static) is illustrated in the balance sheet, indicating a single point in time.
Name the four main financial statements.
Balance sheet, Income statement (also known as the statement of comprehensive income), Statement
of cash flows, Statement of changes in owner's equity
What is financial reporting?
Method for companies to represent their financial performance.
What are the components of the balance sheet?
Assets, Liabilities, Owner's equity, with the key equation being Assets = Liabilities + Owner's Equity (A
= L + OE)
What does the income statement illustrate?
Revenues (↑ inflows), Expenses (↓ outflows), Other income, encompassing gains and losses
,What is recorded in the statement of changes in equity?
Records the sources and reasons for changes in owner's equity during a specific period.
What are the three types of cash flows in the statement of cash flows?
Operating cash flows (CFO), Investing cash flows (CFI), Financing cash flows (CFF)
What information do footnotes provide in financial statements?
These audited disclosures provide additional details supporting figures on the primary statement. They
clarify presentation, accounting methods, assumptions, estimates, legal actions, commitments, etc.
What is the purpose of Management Discussion and Analysis (MD&A)?
Offers a review of trends, sales, expenses efficiency, capital structure, and liquidity. Usually unaudited
and may exhibit bias, potentially making poor performance appear better.
What is the goal of an audit?
Independent review of financial statements, performed by an auditor appointed by shareholders. Goal is
to verify the truth and fairness of the statements.
What are the types of audit opinions?
Unqualified, Qualified, Adverse, Disclaimer of opinion
What are internal controls in financial statements?
,Processes ensuring accuracy in financial statements. Auditors determine materiality levels and verify
that accounting methods/principles and assumptions seem reasonable.
Why are accounting choices significant to financial statement users?
Highly significant, especially in areas of subjectivity (assumptions made). These choices can add
uncertainty.
What are the reporting frequencies for financial statements?
Quarterly reports (mandatory for US listed firms) and semi-annual reports (for other exchanges) may not
be audited. Proxy statements allow voting by proxy.
What is proxy voting?
Allows shareholders to represent their interests without physical attendance. Investment firms weigh
the value of voting against the associated costs.
What are corporate reports and press releases?
Authored by management, unaudited, and potentially biased.
What are the six steps to the financial statement analysis framework?
1. State the objective and context, 2. Gather data, 3. Process data, 4. Analyse and interpret data, 5.
Report conclusions or recommendations, 6. Update the analysis
What is the primary objective of financial reporting?
Provides information to existing and potential investors, lenders, and other creditors
, What are the characteristics of information provided in financial reporting?
Information needs to be relevant and timely; value decreases as time passes
What is the role of FASB in financial reporting?
FASB governs US GAAP
What is the role of IASB in financial reporting?
IASB governs IFRS
What is the purpose of standard-setting bodies in financial reporting?
To ensure consistency across companies and years, leading to comparability
How do standard-setting bodies enforce their rules?
Through auditing
What is the purpose of the International Organization of Securities Commissions (IOSCO)?
Regulates more than 95% of the world's financial markets, uniform regulation worldwide, international
coordination, benchmark principles for regulators, customer protection
What are the required filings regulated by the Securities and Exchange Commission (SEC)?
Form S-1, Form 10-K, Form 10-Q, 6K, Form DEF-14A, Form 8-K
Reporting Questions and Answers
What is financial statement analysis used for?
Utilized to inform economic decisions by revealing past performance and current financial positions.
What reflects past performance in financial statements?
Past performance (Dynamic) is reflected in the income statement, covering a specific period.
What illustrates the current status in financial statements?
Current status (Static) is illustrated in the balance sheet, indicating a single point in time.
Name the four main financial statements.
Balance sheet, Income statement (also known as the statement of comprehensive income), Statement
of cash flows, Statement of changes in owner's equity
What is financial reporting?
Method for companies to represent their financial performance.
What are the components of the balance sheet?
Assets, Liabilities, Owner's equity, with the key equation being Assets = Liabilities + Owner's Equity (A
= L + OE)
What does the income statement illustrate?
Revenues (↑ inflows), Expenses (↓ outflows), Other income, encompassing gains and losses
,What is recorded in the statement of changes in equity?
Records the sources and reasons for changes in owner's equity during a specific period.
What are the three types of cash flows in the statement of cash flows?
Operating cash flows (CFO), Investing cash flows (CFI), Financing cash flows (CFF)
What information do footnotes provide in financial statements?
These audited disclosures provide additional details supporting figures on the primary statement. They
clarify presentation, accounting methods, assumptions, estimates, legal actions, commitments, etc.
What is the purpose of Management Discussion and Analysis (MD&A)?
Offers a review of trends, sales, expenses efficiency, capital structure, and liquidity. Usually unaudited
and may exhibit bias, potentially making poor performance appear better.
What is the goal of an audit?
Independent review of financial statements, performed by an auditor appointed by shareholders. Goal is
to verify the truth and fairness of the statements.
What are the types of audit opinions?
Unqualified, Qualified, Adverse, Disclaimer of opinion
What are internal controls in financial statements?
,Processes ensuring accuracy in financial statements. Auditors determine materiality levels and verify
that accounting methods/principles and assumptions seem reasonable.
Why are accounting choices significant to financial statement users?
Highly significant, especially in areas of subjectivity (assumptions made). These choices can add
uncertainty.
What are the reporting frequencies for financial statements?
Quarterly reports (mandatory for US listed firms) and semi-annual reports (for other exchanges) may not
be audited. Proxy statements allow voting by proxy.
What is proxy voting?
Allows shareholders to represent their interests without physical attendance. Investment firms weigh
the value of voting against the associated costs.
What are corporate reports and press releases?
Authored by management, unaudited, and potentially biased.
What are the six steps to the financial statement analysis framework?
1. State the objective and context, 2. Gather data, 3. Process data, 4. Analyse and interpret data, 5.
Report conclusions or recommendations, 6. Update the analysis
What is the primary objective of financial reporting?
Provides information to existing and potential investors, lenders, and other creditors
, What are the characteristics of information provided in financial reporting?
Information needs to be relevant and timely; value decreases as time passes
What is the role of FASB in financial reporting?
FASB governs US GAAP
What is the role of IASB in financial reporting?
IASB governs IFRS
What is the purpose of standard-setting bodies in financial reporting?
To ensure consistency across companies and years, leading to comparability
How do standard-setting bodies enforce their rules?
Through auditing
What is the purpose of the International Organization of Securities Commissions (IOSCO)?
Regulates more than 95% of the world's financial markets, uniform regulation worldwide, international
coordination, benchmark principles for regulators, customer protection
What are the required filings regulated by the Securities and Exchange Commission (SEC)?
Form S-1, Form 10-K, Form 10-Q, 6K, Form DEF-14A, Form 8-K
