FR&A - Introduction

Start 4:00 pm

Financial Statement Analysis: An Introduction

Objective of reporting per IASB:

• Provide information about the financial position, performance, and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.
• Income statement - revenues and expenses are ongoing, gains and losses are peripheral
• Balance sheet - firm's financial position at a point in time.  Assets = liabilities + owners equity
• Cash flow - operating, investing, financing
• Statement of changes in owner's equity - amounts and changes in equity over time

Footnotes - accounting methods, assumptions, and estimates.  These are audited.  Also has info on contingencies etc.  Note that supplementary schedules are NOT audited.

Supplementary schedules - operations by region/segment, reserves (oil/gas), hedging activities and financial instruments.

MD&A - from perspective of mgmt.  In US they MUST discuss

• results from ops, with discussion of trends in sales/expenses
• Capital resources/liquidity, discuss trends in cash flows
• General business overview on known trends

Can also include accounting policies, uncertainties, forward looking data, liquidity events, discontinued ops, disclosures for interim financials, discussion of segments.

Audit - independent review with objective to provide opinion on fairness and reliability of statements

Audit opinion

• 3 parts which state:
• Audit is independent
• Audit standards were followed so this is reasonable assurance that statements contain no material errors
• Auditor is satisfied that appropriate standards were followed.  Must also contain a report of where accounting methods were not consistent between periods.
• Results:
• Unqualified - free from material omissions/errors
• Qualified - there are exceptions and these are explained
• Adverse - statements are not fair
• Also will contain explanatory paragraph if material losses are possible but not measurable
• Must state an opinion on company's internal controls
• Firm's must avow to this and it is their responsibility

Other sources of information

• Quarterly/semiannual - not necessarily audited
• Proxy statements - when a shareholder vote is required
• Corporate reports/press releases - sales material of company
• Other economic/industry data.  Comps, trade journals, stats services, government agencies

Framework - 6 steps

1. State objective
2. Gather data - including talking to mgmt
3. Process data
4. Analyze and interpret
5. Report conclusions - remember code and standards
6. Update analysis and change conclusions when necessary

End of reading.

4:20 pm
.33 hours