Financial Reporting & Analysis - Overview Flashcards
Balance sheet equation
Assets = liabilities + owner’s equity
owner’s equity = contributed capital + retained earnings
Income statement equation
Revenue - expenses = net income (loss)
Ending retained earnings formula
- Beginning retained earnings + net income - dividends, or
2. Beginning retained earnings + revenue - expenses - dividends
Expanded balance sheet equation
Assets = liabilities + contributed capital + beginning retained earnings + revenue - expenses - dividends
What links the income statement to the balance sheet?
Retained earnings adds net income - dividends to beginning retained earnings to arrive at ending retained earnings.
Accounting for deferred revenue
- Record cash receipt & establish a liability (unearned revenue)
- Reduce liability while recording revenue
Accounting for prepaid expenses
- Record cash & establish an asset (prepaid expense)
2. Reduce asset while recording expense
Accounting for un-billed revenue
- Record revenue & establish an asset (un-billed revenue)
- When billed, reduce asset (un-billed revenue) and increase accounts receivable
- When paid, increase cash and reduce accounts receivable.
IASB definition
- International Accounting Standards Board.
2. Independent private body of the IFRS foundation.
FASB definition
- U.S. Financial Accounting Standards Board.
2. Source of U.S. GAAP
IOSCO definition
- International Organization of Securities Commissions
2. Members regulate > 90% of world’s capital markets (include SEC, etc)
SEC
- Created by the Securities Exchange Act of 1934.
2. Sarbanes-Oxley Act of 2002: created the Public Company Accounting Oversight Board (PCAOB) to oversee auditors.
Form: Securities Offering Registration
- Required by the 1933 Act
2. Info includes: securities being offered, info typically in annual fillings, recent audited financials, risks, etc.
Forms: 10-k, 20-F & 40-F
Annual reports with audited financials, MD&A, etc
Annual Report
Not required by the SEC, opportunity to market to investors. Significant overlap between this & the 10k.
Form: Proxy Statement Form / DEF-14A
- Gives right to vote on shareholder’s behalf prior to shareholder meeting.
- Required by the SEC
Forms: 10Q & 6K
- 10Q = quarterly statement for U.S. companies.
- 6K = semiannual report for non-U.S. companies.
- Both includes un-audited financials, MD&A, etc
Form: 144
Filed with the SEC as notice of proposed sale of restricted securities or those held by an affiliate.
Forms: 3, 4 & 5
Director, officer or beneficial owners of > 10% must file
3 = initial statement
4 = changes
5 = semiannual report
Form: 11-k
Annual report of employee stock purchases, savings & similar plans.
Qualitative characteristics of financial reports
- Relevant
2. Faithful representation: complete, neutral and free from error
Definition: assets
What the company owns. Function of past events, but expected to generate future economic benefits.
Definition: liabilities
Present obligation arising from past events. Settlement results in outflow of resources.
Definition: equity
Residual interest in assets after subtracting liabilities.
Going concern assumption
Assumption that companies will continue to operate into the foreseeable future. Important for a number of reasons, but one is that inventory is worth less if company is in liquidation mode.
Definition: historical cost
If gifted, historical cost can be the fair value @ point received.
Definition: amortized cost
Historical cost adjusted for amortization, depreciation, depletion or impairment.
Definition: current cost
Cost today for asset or to settle liability.
Definition: realizable value
Value if sold (asset) or settled (liability) through the normal course of business.
Definition: present value
Present discounted value of future net cash flows.
Definition: fair value
Amount exchanged or settled through arms length transaction by knowledgeable participants.
Owner’s equity
Beginning retained earnings + contributed capital + net income - dividends
