Financial Statements (I)

The fundamental qualitative characteristics under the IFRS conceptual framework are:

- Relevance and faithful representation make financial information useful - Verifiability, timeliness and understandability enhance usefulness of relevant and faithfully represented financial information

What elements of financial statements is related to measurement of financial position?

Assets, liabilities, and equity (balance sheet)

Ratios are an input into which step in the FS analysis framework?

Analyze/interpret the processed data Ratios are an output of the process data step but are an input into the analyze/interpret data step

Historical cost?

Historical cost is the consideration paid to acquire an asset

What type of audit opinion is preferred when analyzing financial statements?

Unqualified - "clean" opinion indicating that the FS present the company's performance and financial position fairly in accordance with a specified set of accounting standards

The general features underlying the preparation of FS under the IFRS is:

Consistency

What is required by the proxy statement?

Disclosure of management compensation They contain information about matters that will be put to a vote at shareholders' meetings

What is 'Accrual Basis'?

Effects of transactions and other events being recognized when they occur, not when the cash flows These effects are recorded and reported in the FS

The role of financial statement analysis is to:

Evaluate a company through financial reports for the purpose of making investment, credit, and economic decisions

What is the role of financial statement analysis?

Examine past and current performance using financial reports to form expectations about the future

What are the responsibilities of an auditor for a publicly traded firm in the United States?

Express opinion about the effectiveness of the company's internal control systems in accordance with the Public Accounting Oversight Board, under the Sarbanes-Oxley Act

Financial statement analysis VS Financial reporting

FSA: evaluate the financial reports FR: provide information about the performance and financial position to make economic decisions

What elements of financial statements is related to measurement of performance?

Income and expenses (Income statements)

A company's profitability for a period is evaluated using the:

Income statement The income statement presents information on the financial results of activities over a period of time by communicating how much revenue was generated and the expenses incurred to generate that revenue.

What did the International Accounting Standards Board (IASB) develop?

International Financial Reporting Standards (IFRS)

Information about a company's objectives, strategies, and significant risks are found in the:

Management commentary

What results in an increase of owners' equity?

New equity issuance

Are interim financial reports audited?

No. Interim reports (provided semiannually or quarterly) present the four basic FS and condensed notes

Common-size financial statements are a component of which step in the financial analysis framework?

Process data step

The valuation technique under which assets are recorded at the amount that would be received in an orderly disposal is:

Realizable value

An independent audit report provides:

Reasonable assurance that the financial statements are fairly presented meaning that there is a high probability that the audited FS are free from material error, fraud, or illegal acts

Qualified audit opinion?

Some scope limitation or exception to accounting standards Exceptions are described in the audit report with additional explanatory paragraphs so that the analyst can determine the importance of the exception

Which statement is not a required financial statement according to the International Accounting Standard (IAS) No. 1?

Statement of changes in income Under IAS No. 1, a complete set of financial statements includes: - Statement of financial position - Statement of comprehensive income - Statement of changes in equity - Statement of cash flows - Notes that summarize accounting policies and other information

US generally accepted accounting principles are developed by?

The Financial Accounting Standards Board (FASB)

What is 'Going Concern"?

The assumption that an entity will continue to operate for the foreseeable future

A financial position is best evaluated using:

The balance sheet - portrays financial position on a specified date Balance sheets present information about shareholder's residual claim/equity/residual interests on assets

Which phase in the FS analysis framework involves producing updated reports and recommendations?

The follow-up phase - gathering information and repeating the analysis to determine whether it is necessary to update reports and recommendations

Financial statement notes are important because..

They provide information necessary to understand the FS They include accounting policies, methods, and estimates used in preparing FS Some aspects of management compensation are disclosed in the notes of FS

Objectives of the International Organization of Securities Commissions (IOSCO) are:

To ensure that markets are fair, efficient, and transparent To reduce (NOT eliminate) systemic risk To protect investors (NOT all users of financial statements) It provides a forum for regulators from different jurisdictions to work together toward fair, efficient, and transparent markets, promoting cross-border cooperation and uniformity in securities regulation

The role of financial reporting is to:

provide information about the performance of a company, its financial position, and changes in financial position that is useful in making economic decisions