CFA R24

Question 1

Describe the objective of financial statements and the importance of
financial reporting standards in security analysis and valuation.

Answer 1

the objective
of financial reporting is to provide information about the firm to current and potential
investors and creditors that is useful for making their decisions about investing in or
lending to the firm

financial statements could potentially
take any form if reporting standards did not exist. Thus, financial reporting standards
are needed to provide consistency by narrowing the range of acceptable responses

Reporting standards ensure that transactions are reported by firms similarly. However,
standards must remain flexible and allow discretion to management to properly describe
the economics of the firm

Question 2

Standard-setting bodies

Answer 2

professional organizations of accountants and auditors that establish financial reporting standards.

Question 3

Regulatory authorities

Answer 3

government agencies

that have the legal authority to enforce compliance with financial reporting standards

Question 4

two primary standard-setting bodies

Answer 4

Financial Accounting Standards Board
(FASB)—sets (GAAP)

International Accounting Standards Board (IASB)—sets International Financial Reporting Standards (IFRS)

Question 5

Desirable attributes of standard-setters:

Answer 5

• Observe high professional standards.
• Have adequate authority, resources, and competencies to accomplish its mission.
• Have clear and consistent standard-setting processes.
• Guided by a well-articulated framework.
• Operate independently while still seeking input from stakeholders.
• Should not be compromised by special interests.
• Decisions are made in the public interest