Lesson 1- Financial Statements Flashcards
financial reporting
providing info about companies
- performance
- financial position
useful to make financial decisions/investment?
FS Analysis
take the financial reports/other info to mak evaluation of: past, present and future performance of firm purpose: - making investment credit other economic decisions
inputs for investment decisions
profitability cash flow liquidity (st obligations) solvency (lt obligations) financial positions (asset/liabilities)
Major financial statements
- balance sheet
- income statement - statement of comprehensive income
- statement of changes in equity
- statement of cash flow
other info. sources
- footnotes
- management´s commentary
- Audit
- Balance Sheet
Statement of financial positions/ condition
- presents current f. position at a SPECIFIC point in time
- elements: assets (resources), liabilities ( owes); owners equities (excess A> L)
A = L + E
- Income Statement
Statemen of Operations
Profit or Loss Statement
- present financial results of firm´s business activity OVER PERIOD OF TIME
- reflects how much revenue firm is able to generate during period of time (including matching expenses)
Revenue = inflows
Expenses = outflows
other income not arising n the ordinary core operations
Net Income = Revenue - Expenses
- Income Statement
Extra
firm also reports: EPS (basic and diluted)
consolidation:
A) parent controls subsidiary (each line of consolidated IS includes the entire amount from relevant line item)
b) if parent doesn´t owe 100% - parents should present an allocation of NI to minority interest (non-controlling interest) - refers to owners of remaining shares
M.I = shown at bottom of the IS along with the NI attributable to SH of the parents
- Statement of Comprehensive Income
other comprehensive income
Includes all items that impact owner´s equity but aren´t result of transactions with shareowners
E.g. unrealised gain coming from result of foreign operation translated into home currency
it is an extension of the income statement
Example:
- revaluation of PPE
- foreign currency translation differences for foreign operations
- (tax and other comprehensive income)
- Statement of Changes in Owner´s EQuity
reflects changes in owner´s investment of the business OVER TIME
aims to help users understand the changes in share capital and reserves that took place during period
shows effect
a) on share capital and reserves of TCI and
b) share issue or purchase
c) effects on dividends (but could also be presented on the notes)
- Cash Flow Statement
reflects financial flexibility - ability of firm to react &adapt to financial adversity&opportunities
reports:
- cash receipts &payments
- vital for lt success
- helps to evaluate Co´s liquidity that comprises the daily operations
a) operating activities:
- primary activities transactions - comprise day to day operations
- investing activities - transaction associated with acquisition &disposal of LT assets
- financing activities - those related to obtaining or repaying capital
- Financial Notes
Footnotes
Explanatory info about all 4 FS:
- provide inclusion of consolidated entities
- info. about accounting methods, assumptions, estimated
- business acquisition and disposals
- commitments and contingencies, depreciation methods
- stock options, other employee benefit plans, pension plans
- business & geog. segments
- Management´s Discussion and Analysis (MD&A)
Management´s Commentary
Financial Review
Management´s Report
highlights any favourable/disfavorable trend for the company/industry
identifies significant events an uncertainties
other topics:
- changing prices
- critical accounting policies
- any material aspect that impacts the result of company
- off-balance sheet obligation
- Auditor´s Report
audit writes an independent review of an entity´s FS
objective = enable auditor to provide an opinion on fairness and reliability of FS
–> always related to a financial reporting framework
‘sampling’ Methodology: hence cannot guarantee 100% results
reasonable assurance that FS contain no material errors, fraud or illegal acts
- Auditor´s Report
Paragraphs
standard independent audit report has diff. paragraphs:
1. introductory P:
describes FS that were audited + responsibilities both of management and indep. auditor
- scope P:
describes nature of audit process - opinion P:
expresses auditor´s opinion on fairness of audited FS
a) unqualified opinion =
FS give a rue and fair view in accordance with applicable accounting standards
also refer as cleaned opinion
b) qualified opinion =
there exists some limitations or exception to accounting standards
b) adverse opinion =
occurs when FS materially depart from accounting standards - not fairly presented
- Int. Ctrls:
audit opinion on the Co. internal control system
processes by which the Co. ensures that it presents accurate FS
