Financial Reporting Flashcards
Financial Reporting
The way companies show their financial performance to investors, creditors, and other interested parties by preparing financial statements
Financial Statement Analysis
Use the information in a company’s financial statements, along with other relevant information, to make economic decisions
Balance Sheet
Reports the firm’s financial position at a point in time
- Assets: resources controlled by the firm
- Liabilities: amounts owed to lenders and other creditors
- Shareholders’ Equity: residual interest in net assets of an entity that remains after deducting liabilities
Statement of Comprehensive Income
Reports all changes in equity except for shareholder transactions (issuing, repurchasing, paying dividends)
Income Statement
Reports the financial performance of the firm over a period of time
- Revenues: inflows from delivering goods and services
- Expenses: outflows from delivering or producing goods or services
- Other Income: gains that may or may not arise in the ordinary course of business
Statement of Changes in Equity
Reports the amounts and sources of changes in equity investors’ investments in the firm over a period of time
Statement of Cash Flows
Reports the company’s cash receipts and payments
Operating Cash Flows
Cash effects of transactions that involve the normal business of the firm
Investing Cash Flows
Resulting from the acquisition or sale of property, plant and equipment, of a subsidiary or segment, of securities and of investments in other firms
Financing Cash Flows
Resulting from the issuance or retirement of the firm’s debt and equity securities (include dividends paid)
Footnotes
Disclosures that provide further details about the information summarized in the financial statements. Improve assessment of amount, timing and uncertainty of estimates
Management’s Commentary (MD&A)
Management discusses nature of the business, management’s objectives, company’s past performance, performance measures used, company’s key relationships, resources and risks
Audit
Independent review of an entity’s financial statements (fairness and reliability)
Standard Auditor’s Opinion
- Auditor has performed an independent review
- Reasonable assurance financial statements contain no material errors
- Statements prepared in accordance with accepted accounting principles and estimates are reasonable
Unqualified Opinion
Auditor believes the statements are free from material omissions and errors (clean opinion)
Qualified Opinion
Statements make exceptions to the accounting principles. Auditor report explains exceptions
Adverse Opinion
Statements are not presented fairly or are materially nonconforming with accounting standards
Disclaimer of Opinon
Auditor is unable to express an opinion (scope of limitation)
Going Concern Assumption
Assumption that the firm will continue to operate for the foreseeable future, despite probable material loss (cannot be reasonably estimated)
Internal Controls
Processes by which the company ensures that it presents accurate financial statements (responsibility of management)
Proxy Statements
Issued to shareholders when there are matters that require a shareholder vote (election of board members, compensation, management qualifications, issuance of stock options)
Earnings Guidance
Released prior to financial statements, conference call after where senior management discusses earnings
Financial Statement Analysis Framework
- Objective and Context
- Gather Data
- Process the Data
- Analyze and Interpret the Data
- Report the Conclusions or Recommendations
- Update the Analysis
Standard-Setting Bodies
Professional organizations of accountants and auditors that establish financial reporting standards (FASB and IASB)