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CFA Level 1-Study Session Financial Reporting and Analysis
CFA Level 1 - Review of Financial Reporting Knowledge Points ~ The content covers the static time points of the balance sheet, the purpose of auditing, free cash flow, liquidity, investment real estate, etc.
Edited at 2023-03-12 11:57:33
CFA Level 1-Study Session Financial Reporting and Analysis
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Study Session 6-Financial Reporting and Analysis
SS6
R15: Introduction to Financial Statement Analysis
The role of financial reporting and financial statement analysis (FSA)
Balance sheet
Assets
Liabilities
Owners' equity
Income statement
Revenues
Expenses
Other income
Cash flow statement
Operating cash flows
Investing cash flows
Financing cash flows
The statement of comprehensive income
The statement of changes in equity
B/S&I/S&C/S
B/S&I/S
B/S&C/S
I/S&C/S
The resources used for financial statement analysis
Key financial statements
Financial Statement Elements
Elements
Accounts
Contra accounts
Measurement of Financial Elements
Historical cost
Amortized cost
Fair value
Other relevant information
Financial statement notes (footnotes)
Management’s commentary (unaudited)
Proxy statements
Interim reports
Earnings announcements
External sources
Auditing
A principal-agent relationship
Definition
independent review
reasonable assurance
fairly presented
The Standard Auditor’s Opinion
Unqualified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion
Internal control system
Auditor’s report
Financial statement analysis framework
Accounting Equation and Accrual Accounting
BASE rule
Accrual accounting
R16: Financial Reporting Standards
Accounting Standard
Standard-setting bodies
SEC
Regularly authorities
SEC filing requirements for publicly traded companies in the U.S.
IASB conceptual framework
Two fundamental characteristics
Relevance
Materiality
Faithful representation
Complete
Neutral
Free from error
Four enhanced characteristics
Comparability
among firms
across time periods
Verifiability
Timeliness
Understandability
SS7
R17: Understanding the I/S
Income statement introduction
Format
By Function
Adjustment format
Unusual or Infrequent Items
Income from Discontinued Operations (net of tax)
Accounting changes (notes)
By Nature
Components
Revenues
Non operating Gains/Losses
Non controlling interest
Gross profit
Operating profit
Revenue and expense recognition
Revenue recognition
Matching principle
Company style
Gross and net reporting of revenue
EPS and dilutive securities
EPS
Basic EPS
Preferred Stock
WACSO
Diluted EPS
Treasury stock method
Common-size income statement
Comprehensive income statement
Other comprehensive income
foreign currency translation
Pension liability
Unrealized G/L on available-for-sale
Unrealized G/L from cash flow hedging derivatives
Under IFRS
R18: Understanding the B/S
Balance sheet introduction
Format
Common size B/S
Components
Assets
Current Assets
Cash and equivalents
Accounts receivable
Inventory
Prepaid expenses
Short-term investments
Other current assets
Non Current Assets
Property, plant and equipment (PP&E)
Intangible assets
Long-term investments
Deferred tax assets
Pension assets
Liabilities
Current Liabilities
Bank overdraft
Accounts payable
Accrued expenses
Unearned revenue
The current portion of long-term debt
Current taxes payable
Long-Term Liabilities
Notes payable
Bonds payable
Capital/Financial lease obligations
Pension liabilities
Deferred tax liabilities
Stockholders’ equity
Capital
Additional paidin-capital
Treasury stock
Retained earnings
Accumulated other comprehensive income
Minority interest
Financial instruments
HTM/AC
Amortized cost
Par Value
Coupon rate
Discount/Premium
FVTPL
AFS/FVTOCI
R19: Understanding the C/F
Types of cash flows
USGAAP
CFO
CFI
CFF
U.S. GAAP vs. IFRS
Cash flow calculation
CFO
Direct method
Cash received from customers
Cash paid to suppliers
Cash paid to employees
Indirect method
Application
CFI
Application
CFF
Application
Analysis of Cash flow statement
Common – size CFS
Other ratios
Free Cash Flow
FCFF
R20: Financial Analysis Techniques
Common-size analysis
Analysis of CFO
Performance ratios
Coverage ratios
Ratios and Ratio analysis
Profitability ratio
Profit/Net revenue
Profit/Capital
Activity ratio
Total asset turnover
Fixed asset turnover
Working capital turnover
Inventory turnover
Receivables turnover
Payables turnover
Liquidity ratio
Current ratio
Quick ratio
Cash ratio
Solvency ratio
Valuation ratio
DuPont system of analysis
The three-part approach
The five-part analysis
Equity analysis, credit analysis and segment analysis
Clean surplus relationship
Credit Analysis
SS8
R21: Inventories
Inventory accounting
Capitalize and Expense
Inventory Valuation Method
Specific identification
First in first out (FIFO)
Last in first out (LIFO)
comparison
Weighted average (AVCO)
Periodic vs. perpetual inventory systems
Application
Converting LIFO to FIFO
LIFO reserve
Application
LIFO Liquidation
Application
Impairment & reversal
Impairment
Application
Management & accounting changes
R22: Long-Lived Assets
Capitalize or Expense
• Capitalizing interest
Application
Tangible assets
Depreciation
Application
Intangible assets
Goodwill
Amortization
Other measurement points for assets
Impairment
Application
Evaluation Model
De-recognition of assets
Investment Property
R23: Deferred Income Taxes
Current tax & Deferred tax
Temporary and Permanent Difference
Tax Return Terminology/Financial Reporting Terminology
DTA and DTL
B/S approach to deferred tax issue
Application
Identify Accounting base and Tax base for a B/S item
Application
Tax Rate Change and Effective Tax Rate
Tax Rate Changes To DTA/DTL
Application
Tax Rate Changes
Effective Tax Rate
Reversal of Temporary Difference
R24: Long-Term Liabilities and Leases
Long-Term Debt
Terminology about bond
Effective interest rate
Par bond, discounted bond and premium bond
premium bond
Application
discounted bond
Application
par bond
Zero-coupon bonds
Application
Straight-line method
Other issues about bond
Issue Costs
Fair Value Reporting Option
Application
Derecognition of Debt
Debt Covenant
Affirmative covenants
Negative covenants
Lease
Classification of leases – U.S. GAAP
Accounting for Lease - Lessee
Classification of lease - Lessor
Direct financing lease vs. operating lease
Direct finance lease/sales-type lease
Framework for Pension Plan
Defined contribution plan
Defined benefit plan
Application
SS9
R25: Financial Reporting Quality
Introduction to the quality of financial reports
The quality of financial reports
Aggressive and conservative accounting
Conditions for issuing low quality reports
Warning signs
R26: Financial Statement Analysis: Applications