Financial Reporting & Analysis Framework + Standards + Audit

Question 1

List the 5 steps of the Financial Statement Analysis framework

Answer 1

1) Define objective & context 2) Gather data 3) Process data 4) Analyze/interpret 5) Report conclusions/recommendations

Question 2

Give 3 roles/purposes of financial statement analysis

Answer 2

Make economic decisions; evaluate past performance/current position; assess ability to earn profits/generate cash flow and risks

Question 3

What does the IASB do?

Answer 3

Sets IFRS (International Financial Reporting Standards)

Question 4

What does the FASB do?

Answer 4

Sets US GAAP for US entities

Question 5

What does the SEC do (high level)?

Answer 5

US securities regulator; requires public company filings and oversees disclosure/markets

Question 6

Name 2 issuer-provided information sources analysts use besides the financial statements

Answer 6

Earnings calls; investor presentations; press releases; communications with management (any two)

Question 7

Name 2 public third-party information sources analysts use

Answer 7

Industry/journal articles; government data; analyst/credit reports; trade publications (any two)

Question 8

What are MD&A and footnotes used for?

Answer 8

Explain/expand on financial statements: accounting policies, estimates, risks, segment info, commitments/contingencies

Question 9

Define an unqualified (clean) audit opinion

Answer 9

Financial statements are fairly presented in accordance with the relevant reporting standards

Question 10

Define a qualified audit opinion

Answer 10

FS are fairly presented except for a specific material issue (scope limitation or departure from standards)

Question 11

Define a disclaimer of opinion

Answer 11

Auditor cannot obtain sufficient evidence and does not express an opinion

Question 12

Define an adverse audit opinion

Answer 12

FS are materially misstated and do not fairly present the company’s financial position/performance