Financial Statement Roles

Question 1

What is financial statement analysis?

Answer 1

Steps for analysts to apply to a set of objectives when analyzing debt, equity and corp actions

Question 2

What are the steps for financial statement analysis?

Answer 2

1. State objective and context (what form the data needs to be presented in)
2. Gather data (acquire companies financial statements and ask question on management, supplier, customer anc company sites)
3. Process data (make appropriate adjustements to financial statements / calculate ratios and prepare graphs)
4. Analyze and interpet data (decide which conclusions/recommendations that info supports)
5. Report conclusions/recommendations (prepare a report and communicae it with audience
6. Update analysis (repeat steps periodically and change conclusions/recommendations when necessary

Question 3

What is financial reporting

Answer 3

Financial reporting is the way companies show their financial performance to investors, creditors, and other interested parties by preparing and presenting financial statements

Question 4

What are the two primary standard-setting bodies

Answer 4

US (FASB) - US GAAP
Everywhere else (IASB) - IFRS

Question 5

What is the international organization of securities commissions

Answer 5

IOSCO is an Organisation that regulated 95% of the worlds financial markets .And it’s members work together to improve cross border corporation

It’s work is based on these three objectives:
Protecting investors
Ensuring markets are fair, efficient, and transparent
Reducing systemic risk

Question 6

What are the SEC filings

Answer 6

Form S-1: Registrtion before new securities are sold to the public
Form 10-K: Annual filings
Form 10-Q: Quarterly Filings
Form DEF-14A: When a company prepares proxy statement for its shareholders before an annual meeting
Form 8-K: Companies file this to disclose material events such as s acquisitions and disposals, changes in management
Form 144: Issuing securities to qualified buyers without registering the securities with the SEC
Form 3, 4 and 5: Involving the beneficial ownership of securities by a company’s officers and directors

Question 7

What are financial statement notes

Answer 7

These are footnotes which provide further details about the information summarised in the statements, allowing users to improve their assesments
- Discussing basis of presentation
- Information about accounting methods
- Information on info included in the primary financial statements

Question 8

What is a business segment?

Answer 8

It is a portion of a larger company that accounts for more than 10% of the companies revenues. But it needs to represent at least 75% of the companies consolidated revenue from external customers.

Question 9

What information needs to be disclosed for each segement within financial statement notes

Answer 9

Revneue
Profit/Loss
Assets/Liabilities
Interest
PP&E
Depreciation / Amortization
Non Cash expenses
Income tax
Investment results

Question 10

What is mangement Commentary/MD&A

Answer 10

IFRS: Needs to address the nature of the business, management objectives and companies past performance, performance measures uses, relationships, resources and risks

For Public US companies: The SEC requires it to cover trends, significant events and uncertainties that affect liquidity, capital and operations, including inflations, off-balance sheet obliations, accounting policies, accounting policies, and forward looking expenditures/divestitures

Question 11

What is an audit?

Answer 11

Independent review of an entity financial statements - to provide an opinion on the fairness and reliaiblity of the financial statements.
The auditor examines accountings and internal countrols, assets/liabilities and tries to determine if there are no material errors in the financial statements.

Question 12

What is an auditor’s opinion

Answer 12

It states three things
1. The auditor has independently reviewed statements
2. Generally accepted auditing standards were followed (reasonable assurance of no materal errors).
3. that the auditor is satisfied that the statements were made in accordance wit accounting principles

Three opinions
Unqualified - free from ommission and errors
Qualified - free from ommission and errors except for exceptions that are explained in the audit report
Adverse opinion: If statements are not presented fairly or not made with accounting standards
Disclaimer of opinon: Unable to express opinion due to ut not being presented fairly

Question 13

What are intenral controls

Answer 13

Processes by which the company ensures that it presents accurate financial statements

Question 14

What are audit matters?

Answer 14

An audit report must also contain a section communicating key audit matters (international reports) or critical audit matters (U.S.), which highlights accounting choices that are of greatest significance to users of financial statements.

Question 15

What are examples of issuers sources that analtsts use?

Answer 15

Earnings Calls
Ad-hoc presentations
Press releases
Communications with management, IR and company personnel

Question 16

Examples of Public third-party sources that analysts use?

Answer 16

Industry reportings
Governnment agency produced statistics
Generalized and industry specific media sources
Social Media

Question 17

Examples of Proprietary third-party sources that analyst use?

Answer 17

Analyst reports
Reports from data platforms
Reports from industry specific agencies and consultancies

Question 18

Propr