27 Intro to Financial Statement Analysis Flashcards
What is the first step in the financial statement analysis framework?
State the objective and context
What does the second step in the financial statement analysis framework involve?
Gather data
What is the purpose of processing data in financial statement analysis?
Make appropriate adjustments, calculate ratios, and perform statistical analysis
What is the goal of analyzing and interpreting the data in financial statement analysis?
Use the data to answer the questions stated in the first step
What is involved in the fifth step of the financial statement analysis framework?
Report the conclusions or recommendations
What does the sixth step in the financial statement analysis framework entail?
Update the analysis periodically
What is financial reporting?
The way companies show their financial performance to investors, creditors, and other interested parties
What role does financial statement analysis play?
It uses information from financial statements to make economic decisions
What are some decisions influenced by financial statement analysis?
- Investing in securities
- Extending trade or bank credit
- Assigning credit ratings
What are the two primary standard-setting bodies?
- Financial Accounting Standards Board (FASB)
- International Accounting Standards Board (IASB)
What is the purpose of regulatory authorities?
To enforce compliance with financial reporting standards
What does IOSCO stand for?
International Organization of Securities Commissions
True or False: IOSCO is a regulatory body.
False
What are the three main objectives of the IOSCO Objectives and Principles of Securities Regulation?
- Protecting investors
- Ensuring markets are fair, efficient, and transparent
- Reducing systemic risk
What is the Sarbanes-Oxley Act of 2002 designed to promote?
Auditor independence
What must management certify according to the Sarbanes-Oxley Act?
That the financial statements are presented fairly and the effectiveness of internal controls
What do financial statement notes (footnotes) provide?
Further details about the information summarized in the financial statements
What is a business segment defined as?
A portion of a larger company that accounts for more than 10% of the company’s revenues, assets, or income
What information must be disclosed for each segment in the financial statement notes?
- Revenue (external and between segments)
- A measure of profit or loss
- A measure of assets and liabilities
- Interest (revenue and expense)
- Acquisitions of PP&E and intangibles
- Depreciation and amortization
- Other noncash expenses
- Income tax expense
- Share of equity-accounted investments results
What is management commentary also known as?
Management report, operating and financial review, or management discussion and analysis (MD&A)
What is the objective of an audit?
To provide an opinion on the fairness and reliability of the financial statements
What does an unqualified opinion from an auditor indicate?
The statements are free from material omissions and errors
What are internal controls?
Processes by which a company ensures accurate financial statements
What must the auditor express an opinion on for publicly traded firms in the U.S.?
The firm’s internal controls
