FSA Flashcards
Cash flow statement
Operating cash flow
Investing cash flow
Financing cash flow
Measurement of financial elements
Historical cost Amortized cost Current cost Realizable value Present value Fair value
The statement of comprehensive income
The statement of comprehensive income reports all changes in equity except for shareholder transactions (e.g., issuing stock, repurchasing stock, and paying dividends)
Comprehensive income statement under IFRS
- the income statement can be combined with “other comprehensive income” and presented as a single statement of comprehensive income
- alternatively, the income statement and the statement of comprehensive income can be presented separately.
Comprehensive income statement under US GAAP
firms can choose to report comprehensive income in the statement of shareholders’ equity
The statement of changes in equity
reports the amounts and sources of changes in equity investors’ investment in the firm over a period of time
Other relevant information
- Financial statement notes (Footnotes)
- Supplementary schedules
- Management’s discussion and analysis (MD&A)
- Quarterly or semiannual reports
- Securities and Exchange Commission (SEC) filings
- Proxy statements
- Corporate reports and press releases
- Other necessary information
Financial statement notes (Footnotes)
- providing information about accounting methods, assumptions, and estimates
- providing additional information about business acquisition or disposal, legal actions, employee benefit plans, significant customers, sales to related parties, and segments of the firm
- are audited
Supplementary schedules
- operating income or sales by region or business segment
- reserves for an oil and gas company
- information about hedging activities and financial instruments.
Management’s discussion and analysis (MD&A)
- Providing an assessment of the financial performance and condition of a company from the perspective of its management.
- results from operations, with a discussion of trends in sales and expense
- capital resource and liquidity, with a discussion of trends in cash flow
- a general business overview based on known trends
- material events and uncertainties that may affect the future
SEC filings
- Form 8-K:
- acquisitions or disposals of major assets
- changes in its management
- changes in corporate governance
- Form 10-K: Annual financial statements
- Form 10-Q: Quarterly financial statements
PROXY STATEMENTS
- Issued to shareholders when there are matters that require a shareholder vote
- Providing information about the BOARD members, managements, compensation and the issuance of stock options. (board only shows in proxy statements)
Audit definition
INDEPENDENT review of an entity’s financial statements by an independent accounting firm.
The standard auditor’s opinion
- Unqualified opinion: free from matieral errors, fraud, or illegal acts
- Qualified opinion: if statements make any exceptions to the accounting principles, can issue qualified opinion and explain the exceptions
- Adverse opinion: if not presented fairly or not materially conforming with accounting standards
- Disclaimer of opinion: if the auditor is unable to express an opinion (e.g., in the case of a scope limitation), a disclaimer of opinion is issued.
Audit process
provides a basis for the independent auditor to express an audit opinion on the fairness of the financial statements that were audited
Audit objective
auditor provides REASONABLE ASSURANCE that the financial statements are fairly presented.
Financial statement analysis framework
- articulate the purpose and context of the analysis
- collect data
- process data
- analyze/interpret the processed data
- conclusions & recommendations
- follow up
Financial statement elements
- Assets
- Liabilities
- Owners’ equity
- Revenues
- Expenses
Assets (firm’s economic resources)
- Cash and cash equivalents
- Accounts receivable
- Inventory
- Financial assets
- Prepaid expenses
- Property, plant, and equipment
- Investment in affiliates
- Deferred tax assets
- Intangible assets
Liabilities
- Accounts payable
- Financial liabilities
- Unearned revenue
- Income taxes payable
- Long-term debt
- Deferred tax liabilities
Owners’ equity
- Capital
- Additional paid-in capital
- Retained earnings
- Other comprehensive income
Expenses
- Cost of goods sold
- Selling, general, and administrative expenses (SG&A)
- Tax expenses
- Interest expense
- Losses
Flow of information in an accounting system
- Sources of documents
- Day books/General Journal
- General Ledger
- Trial Balance
- Financial statements
Accounting Equation
- Assets = Owners’ Equity + Liabilities
- Owners’ Equity = Contributed Capital + Retained Earnings
- Ending retained earnings = Beginning retained earnings + Net Income - Dividend
- Net Income = Revenue - Expense
