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    Chapter 1_Accounting_Actuary Class

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    Chapter 1_Accounting_Actuary Class

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    Chapter 1_Accounting_Actuary Class

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    adventurine

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    Chapter 1: Financial

    Statement Analysis: An
    Introduction
    Dr. Hà Hồng Hạnh
    National Economics University
    Learning objectives
    After studying this chapter, you should be able to:
    1. Describe the roles of financial reporting and financial
    statement analysis.
    2. Describe the roles of key financial statements.
    3. Describe the importance of financial statement notes and
    supplementary information.
    4. Describe the importance of audits of financial statements.
    5. Identify and describe information sources using in FSs
    analysis.
    6. Describe the steps in the FSs analysis framework.
    Learning objective 1
    Describe the roles of financial reporting
    and financial statement analysis
    The role of financial reporting is to:
    1.Provide information about a company’s
    performance, financial position, and changes in
    financial position
    2.That is useful to wide range of users in making
    economic decisions
    ( in accordance with the International Accounting
    Standard (IAS) 1)
    The role of financial statement analysis is to:
    1.Use financial reports prepared by companies,
    combined with other information,
    2.To evaluate the past, current, and potential
    performance and financial performance of a
    company
    3.For the purpose of making investment,
    credit, and other economic decisions.
    The role of financial statement analysis
    The role of financial statement analysis
    Learning objective 2
    Describe the roles of key financial
    statements
    A complete set of financial statements include:
    1.A statement of financial position
    2.A statement of comprehensive income
    3.A statement of changes in equity
    4.A statement of cashflows
    ( in accordance with the International
    Accounting Standard (IAS) 1)
    Balance sheet

    The balance sheet (also called the statement of financial


    position or statement of financial condition) presents:
    1.A company’s current financial position by disclosing
    the resources the company controls (assets)
    2. And its obligations to lenders and other creditors
    (liabilities) at a specific point in time
    Statement of Comprehensive Income

    Under IFRS, the statement of comprehensive


    income can be presented as:
    1.A single statement of comprehensive income
    2. Or two statements, an income statement
    an a statement of comprehensive income
    Statement of Comprehensive Income

    1. The income statement presents information


    on the financial results of a company’s
    business activities over a period of time.
    2. Other comprehensive income includes all
    items that impact owners’ equity but are not
    the result of transactions with shareowners.
    Statement of Changes in Equity

    1. The income statement presents information


    on the financial results of a company’s
    business activities over a period of time.
    2. Other comprehensive income includes all
    items that impact owners’ equity but are not
    the result of transactions with shareowners.
    Cash Flow Statement

    1. Discloses the sources and uses of cash.


    2. Classifies all cash flows of the company into
    three categories: operating, investing, and
    financing.
    Learning objective 3
    Describe the importance of financial statement
    notes and supplementary information.
    Financial Notes
    The notes are required and are an integral part of FSs.
    They provide:
    1.Information that is essential to understanding the
    information provided in the primary statements.
    2.Disclose the basis of preparation for the FSs such as
    the accounting policies, methods, and estimates used
    to prepare the FSs.
    3.Additionally, note disclosures include information about
    the financial instruments, related party transactions,
    subsequent events, etc …
    Management Commentary or
    Management Discussion and Analysis
    The Management Discussion and Analysis (MD&A)
    provides a better understanding of information in
    the FSs, such as:
    1.Favorable or unfavorable trends and identify
    significant events and uncertainties that affect
    the company’s liqudity, capital resources and
    results of operations.
    2.Planned capital expenditures, new store
    openings.
    Learning objective 4
    Describe the importance of audits of
    financial statements
    Audits of Financial Statements
    FSs presented in companies’ annual reports are
    generally required to be audited (examined) by
    an independent accounting firm in accordance
    with specified auditing standards.
    The independent auditors provides a written
    report ( an audit report with an audit opinion)
    on the FSs.
    Audits of Financial Statements
    Under International Standards for Auditing (ISAs), the
    objectives of an auditor in conducting an audit of FSs are:
    1.To obtain reasonable assurance about whether the FSs
    as a whole are free from material misstatement (or
    fairly stated), whether due to fraud or error, thereby
    enabling the auditor to express an opinion on whether
    the FSs are prepared in accordance with an applicable
    financial statement reporting framework; and
    2.To report on the FSs, and communicate as required by
    the ISAs
    Audits of Financial Statements
    An audit report includes 3 paragraphs, namely:
    Introductory, Scope and Opinion.
    The opinion paragraph expresses the auditor’s
    opinion:
    1.Unqualified
    2.Qualified
    3.Adverse
    4.Disclaimer
    Learning objective 5
    Identify and describe information sources
    using in FSs analysis
    Learning objective 6
    Describe the steps in the FSs analysis
    framework
    Financial Statement Analysis
    Framework
    FS Analysis Framework include the following phases:
    1.Articulate the purpose and context of the analysis
    2.Collect the input data
    3.Process data
    4.Analyze/ interpret the processed data
    5.Develop and communicate conclusions and
    recommendations
    6.Follow-up
    Other Sources of Information
    Proxy statements, Interim reports, Information
    on websites/ press releases/ conference calls …
    provide information on:
    1.Management and director compensation
    2.Company stock performance
    3.Potential conflicts of interest
    Financial Statement Analysis
    Framework
    1.Articulate the purpose and context of the analysis
    • Statement of the purpose/ objective of the analysis.
    • A list (written or unwritten) of specific questions to be
    answered.
    • Nature and content of report
    • Timetable and budgeted resources for completion
    Financial Statement Analysis
    Framework

    2. Collect the input data


    • Organized FSs
    • Financial data tables
    • Completed questionnaires
    Financial Statement Analysis
    Framework

    3. Process data
    • Adjusted FSs
    • Common-size statements
    • Ratios and graphs
    • Forecasts
    Financial Statement Analysis
    Framework

    4. Analyze/ interpret the processed data


    Analytical results
    Financial Statement Analysis
    Framework

    5. Develop and communicate conclusions and


    recommendations
    • Analytical report
    • Recommendations
    Financial Statement Analysis
    Framework

    6. Follow-up
    • Updated reports
    • Recommendations
    Problems

    Page 34 -35 in Text Book

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