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Fra - Financial Statement Analysis-An Introduciton
Fra - Financial Statement Analysis-An Introduciton
Fra - Financial Statement Analysis-An Introduciton
ANALYSIS
Question 1.
A. financial reporting.
B. the audit report.
C. financial statement analysis.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
A is correct.
Question 2.
A. comprehensive income.
B. financial position.
C. changes in equity.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
C is correct.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Question 3.
A. Share repurchase
B. Cash dividend
C. New equity issuance
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
C is correct.
The basic components of owners’ equity are paid-in capital and retained
earnings. In the paid-in capital account, an example of an increase in owners’
equity is a new equity issuance. Cash dividends reduce retained earnings and
owners’ equity. Share repurchases reduce paid-in capital and owners’ equity.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Question 4.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
C is correct.
The notes disclose information about the accounting policies, methods, and
estimates used to prepare the financial statements.
A is incorrect because the management commentary (or MDA), which is not part
of the notes to financial statements, includes a discussion of significant trends,
events, and uncertainties that affect the operating results.
B is incorrect because the Auditor’s Report, which is not part of the notes to
financial statements, includes the auditor’s opinion as to the fair presentation of
the financial statements.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Question 5.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
C is correct.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Question 6.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
B is correct.
Companies should disclose in management commentary any critical accounting policies that
require management to make subjective judgements that may have a significant impact on
reported financial results. These subjective judgements should be carefully reviewed because
they may materially alter an analyst’s conclusions about the future performance or financial
position of a company.
A is incorrect because companies are not required to disclose future revenue projections in the
management’s discussion and analysis section of financial statements, but should highlight any
favorable or unfavorable trends or uncertainties that may impact future performance or financial
position.
Question 7.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
B is correct.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Question 8.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
C is correct.
A is incorrect because the MD&A is part of the annual report and is not an update
since the last annual report.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Question 9.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
C is correct.
For a publicly traded firm in the United States, the auditor must express an
opinion as to whether the company’s internal control system is in accordance with
the Public Accounting Oversight Board, under the Sarbanes–Oxley Act. The
opinion is given either in a final paragraph in the auditor’s report or as a separate
opinion.
A is incorrect because the statements are those prepared by management, not
the auditor. The auditor is expressing an opinion as to whether the statements
are fairly presented and free from material error.
B is incorrect because the auditor only provides reasonable assurance that the
statements are free from material error.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Question 10.
A. are audited.
B. are issued semi-annually or quarterly.
C. include a full set of financial statements and notes.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
B is correct.
C is incorrect because interim reports generally present the four basic financial
statements and condensed notes.
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Question 11.
A. Collect data
B. Analyze/interpret data
C. Process data
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Financial Reporting & Analysis
CFA LEVEL1 Financial Statement Analysis: An Introduction
Solution
C is correct.
A is incorrect because the financial statements are obtained in the collect data
step, but not converted into common-size statements until the process step.
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