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96 Cards in this Set
- Front
- Back
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Statement of retained earnings |
Beginning retained earnings + rev-exp-dividends |
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Assets = |
Liabilities +contributed capital + statement of retained earnings |
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Recording process is based on double entry accounting |
Which means Every transaction affects at least 2 accounts such that debits = credits |
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Information flow of accounting 4 stages |
1) journal entries( and adjusting entries) 2) general ledger 3) trial balance 4)financial statements |
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Role of financial statements |
Provide information: Financial performance Financial position Changes in financial position |
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Role of financial statement analysis |
1) make economic decisions.. do we invest, lend, acquire? 2) make assessments.. valuation , ratings |
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Primary financial statements |
Periodic and annual |
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Periodic financial statements |
Are unaudited whereas annul statements audited |
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Balance sheet |
Assets= liabilities+owners equities |
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Current assets |
Are the most liquid |
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Ifrs |
Specifies categories but not format. Ordering by liquidity may differ |
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Assets are debit entries |
Liabilities are credit entries |
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Income statement |
Under ifrs it can be single statement or 2 statements one being income statement that ends with net income and the other begins with net income and ends with comprehensive income |
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Other comprehensive income |
All items that will impact the book value of the company but are not the results of transactions with shareholders |
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Statement of changes in owners equity |
For each equity account: beg balance + increases - decreases = ending balance |
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Cash flow statement |
Outlines source and uses of cash flows from operations, investing, financing |
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Financial footnotes |
1 Need to understand statements 2 policies ,methods ,estimates 3 acquisitions disposals 4 commitments and contingencies 5 legal proceedings 6 subsequent events 7) related party transactions 8 segment performancd |
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The footnotes provide |
Information about almost every line item in the statements. Facilitates comparison between IFRS and GAAP |
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Management discussion and analysis |
IFRS requires : nature of business Management objectives and strategies Significant resources Results of operations |
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Audits objectives |
Obtain reasonable assurance that statements are free from material misstatement Report on the fin statement + communicate findings |
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Sarbanes oxley |
Auditors must express an opinion on the company’s internal control system |
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Along with relevance, the most critical qualitative characteristic of financial information is |
Faithful representation |
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Updated information on a company’s performance and financial position since the last annual report is most likely found in |
Interim reports |
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Managements commentary also known as md&a most likely includes |
A discussion of significant trends and uncertainties that affect the operating result |
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Which of the following best describes the role of financial statement analysis |
To form expectations about a company’s future performance and financial position |
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Accounting policies,methods, and estimates used in preparing financial statements are most likely to be in |
Notes to the financial statements |
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Critical audit matters (us) |
Issues that involve especially challenging, subjective, or complex auditor judgement |
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Other sources of information include |
Interim report - quarterly statements Proxy statements - matters that require shareholder vote |
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Within proxy statements you may find information regarding |
Management compensation and stock performance |
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Financial statement analysis |
1) determine the purpose and context of the analysis 2) collect data (financial statements, discussions with mgt, company site visits) 3)process data (ratios, growth rates, common size statements) 4) analyze and interpret data 5) develop and communicating conclusions 6) follow up |
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Ratios are an output of the process data |
But are an input into the analyze and interpret data step |
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Us generally accepted accounting principles are currently developed by which entity |
The financial accounting standards board |
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Accounting standards |
Provide principles for preparing financial reports and determine the types and amounts of information that must be provided to users |
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International accounting standards board (IASB) |
Objective of financial reporting is to provide financial information that is useful to users in making decisions about providing resources to the entity |
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Standard setting bodies |
IASB - sets standard for IFRS FASB- sets standards for U.S gaap |
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Regulatory authorities |
The SEC is a regulatory authority and they recognize, require, and enforce the standards |
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Accounting standard boards |
Typically independent private and not for profit organizations |
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IASB is the standard setting body for IFRS |
Principle objective is to develop/promote the use and adoption of a single set of standards. Standards that are transparent,comparable, decision useful information |
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INTERNATIONAL ORGANIZATIOJ OF SECURITIES COMMISION (IOSCO) |
Made up of regulators of different markets. They do not develop regulations but establish objectives |
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Core objectives of regulation |
Protect investors , ensure markets are fair efficient and Transparent, reduce systematic risk |
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Securities and exchange commission submission examples |
Securities offering registration statements 10-k annual audited Proxy statement 10 Q quarterly unaudited 8k material events such as mergers management changes etc 3,4,5 beneficial ownership 144 sales of restricted shares 11k esop report (employee stock option) |
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Europe follows the ifrs |
True |
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Qualitative characteristics of financial reports |
Relevance: info is relevant if it would affect or make a difference in users decisions Faithful representation: info is complete, neutral, and free from error |
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Enhancing characteristics of financial reports |
Comparability Verifiability- involves trade offs Timeliness- available prior to making a decision Understandability- clear and concise presentation |
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Liabilities |
An obligation of the entity to transfer an economic resources (what a company owes) |
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Equity |
Assets-liabilities |
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Accrual accounting |
Matching principle, revenue recognized as earned |
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Accrual accounting |
Matching principle, revenue recognized as earned |
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Going concern |
Company will continue to operate |
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Accrual accounting |
Matching principle, revenue recognized as earned |
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Going concern |
Company will continue to operate |
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Historical cost |
Amount originally paid |
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Accrual accounting |
Matching principle, revenue recognized as earned |
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Going concern |
Company will continue to operate |
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Historical cost |
Amount originally paid |
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Amortized cost |
Historical cost minus depreciation/amortization |
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Accrual accounting |
Matching principle, revenue recognized as earned |
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Going concern |
Company will continue to operate |
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Historical cost |
Amount originally paid |
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Amortized cost |
Historical cost minus depreciation/amortization |
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Current cost |
Amount required today for replacement |
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Accrual accounting |
Matching principle, revenue recognized as earned |
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Going concern |
Company will continue to operate |
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Historical cost |
Amount originally paid |
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Amortized cost |
Historical cost minus depreciation/amortization |
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Current cost |
Amount required today for replacement |
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Present value |
Discounted value of future net cash inflows |
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Fair value |
Amount realized in a sale (normal markets) |
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General features of financial statements |
Fair presentation Going concern Accrual basis Materiality |
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Assets and liabilities should not be used to |
Offset each other |
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Comparative information should be provided for previous years |
True |
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Consistency |
Items presented and classified in the same manner in every period |
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Ifrs required disclosures in notes |
Disclosure of accounting policies |
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What’s in disclosure of accounting policies |
Measurement base used in preparing financial statements Significant accounting policies used Judgements made in applying accounting policies that have the most significant effect on the amounts recognized in the statements |
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The valuation technique under which assets are recorded at the amount that would’ve received in an orderly disposal is |
Realizable value |
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Which of the following disclosures regarding new accounting standards provides the most meaningful information to an analyst? |
The impact of adoption is discussed |
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Comprehensive income first line is |
Net income. |
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Components of the income statement |
Revenue- first line and shows amounts charged for goods and services in the ordinary activities of the business. Expenses- outflows, depletion of assets, incurrence of liabilities in the ordinary course of the business |
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Expenses can be grouped by nature and function |
By nature you would have one like such as depreciation whereas by function the depreciation would be scattered across multiple lines such as cogs, manufacturing overhead |
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Gain/losses are typically non operating |
Such as sale of assets. |
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Operating profit |
Gross profit - operating expenses |
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Gross profit |
Rev - cogs |
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Payment after delivery is an |
Accounts receivable |
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Payment before delivery |
Unearned revenue |
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5 steps to recognizing revenue |
1) identify the contract with a customer 2) identify the distinct performance obligation in the contract 3)determine the transaction price 4)allocate the price to the performance obligations 5)recognize revenue when a performance obligation is satisfied |
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Expense recognition IASB |
Expenses are decreases in benefits in the form of: outflows, depletion of asset etc. |
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Product cost |
Cogs is a product cost. Directly related to revenue |
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Period costs |
Admin, depreciation are period cost. Related to operations regardless of the level of revenue |
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Last in first out is only a |
U.S GAAP inventory counting system. IFRS does not recognize jt |
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Under fifo method the oldest goods purchased are assumed |
To be sold first and the newest goods purchased assumed to remain in inventory |
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Warranties |
Are estimates of what we think the expense will be. You can’t write of this for tax purposes as it is not an actual cost |
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Depreciation/amortization |
Cost of long lived assets are allocated over the period of time during which they provide economic benefits |
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2 methods of depreciation under ifrs |
Cost model and revaluation model |
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Cost model depreciation |
Straight line Dep= cost - salvage/ useful life |
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Cost model depreciation |
Straight line Dep= cost - salvage/ useful life |
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Book value |
Original cost of asset - accumulated depreciation |
