FSA Module 1

The role of financial statement analysis is

evaluating a company for the purpose of making all economic decisions

Requirements of MD&A

-must highlight any favorable or unfavorable trends -effects of inflation, $ change, material events -off balance sheet obligations -critical accounting policies

Management discussion and analysis (MD&A)

-nature of business -objectives/strategies -risks -results -performance measurements

6 phases of FSA framework

1. purpose and context of analysis 2. collect input data 3. process data 4. analyze and interpret data 5. conclude and provide recs 6. Follow up

Independent Auditor's Report

1st- intro to FS and responsibilties 2nd- scope of audit process 3rd- gives opinion

Information about a company's objectives, strategies, and significant risks would most likely be found in the

management commentary

Which phase in the financial statement analysis framework most likely involves producing updated reports and recommendations in the future? A.Follow-up B.Analyze/interpret the processed data C.Develop and communicate conclusions and recommendations

A.Follow-up

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

Analyze/interpret the processed data

Liquidity

Availability of resources to meet short-term cash requirements.

Which of the following sources of information used by analysts is found outside a company's annual report? A.Notes to the company's financial statements B.Peer company analysis C.Management's discussion and analysis

B. Peer Company Analysis

sellside

CEO, CFO, invest banks who want capital from investors for business operations

Disclaimer of Opinion

Report on financial statements issued when the auditor is unable form opinion/ to obtain enough information to determine if the statements conform to GAAP

Which of the following best describes the role of financial statement analysis?

To form expectations about a company's future performance and financial position

Adverse Opinion

a report issued when the auditor believes the financial statements are so materially misstated or misleading as a whole

Information about management and director compensation would least likely be found in the

auditor's report

A company's current financial position would best be evaluated using the

balance sheet

The financial statement that presents a shareholder's residual claim on assets is the:

balance sheet

financial position

balance sheet

financial report includes

balance sheet statement of comprehensive income statement of changes in equity statement of cash flow

Credit analysis questions (4)

can you pay back? how soon? how volatile? in what format?

Profit/loss (ownership) include

cash and conceptual

earnings management

decorating statements to smooth out bumps in net income and make sure looks legit

Providing information about the performance and financial position of companies so that users can make economic decisions

financial reporting

audits are included in

financial reports

The income statement is best used to evaluate a company's

financial results from business activities

Business Activities

financing, investing, operating aka FIO

Buyside

fund mgrs, investors of firms w hope of returns

A company's profitability for a period or over a period of time is best evaluated using the

income statement

earningscast.com

interim reports for company

Solvency

long term cash needs

Accounting policies, methods, and estimates used in preparing financial statements are most likely found in the

notes to the financial statements

Cash (no ownership) includes

profits, loss, credits, financing

Which of the following best describes why the notes that accompany the financial statements are required? The notes

provide information necessary to understand the financial statements

An auditor determines that a company's financial statements are prepared in accordance with applicable accounting standards except with respect to inventory reporting. This exception most likely results in an audit opinion that is

qualified

An independent audit report is most likely to provide

reasonable assurance that the financial statements are fairly presented.

unqualified opinion

true and fair view (international) fairly presented (international and US)

Interim financial reports released by a company are most likely to be

unaudited

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

unqualified