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FINANCIAL STATEMENT ANALYSIS (role (audit reports (opinion (unqualified…
FINANCIAL STATEMENT ANALYSIS
role
financial statement analys
isuse the information in a company’s financial
statements, along with other relevant information, to make economic decisions
balance sheet
financial position at a point in time.
Assets
are the resources controlled by the firm.
Liabilities
are amounts owed to lenders and other creditors.
Owners’ equity
is the residual interest in the net assets of an entity that remains after
deducting its liabilities.
income statement
include
revenues, expenses, and gains and losses.
U.S. GAAP except that firms can choose to report comprehensive income in the statement of
shareholders’ equity.
statement of changes in equity
reports the amounts and sources of changes in equity investors’
investment in the firm over a period of time.
statement of cash flows
Operating cash flows
include the cash effects of transactions that involve the normal
business of the firm.
Investing cash flows
are those resulting from the acquisition or sale of property, plant, and
equipment; of a subsidiary or segment; of securities; and of investments in other firms.
Financing cash flows
are those resulting from issuance or retirement of the firm’s debt and
equity securities and include dividends paid to stockholders.
Footnotes
provide further details about the
information summarized in the financial statements
Discuss the basis of presentation such as the fiscal period covered by the statements and the
inclusion of consolidated entities.
Provide information about
accounting methods, assumptions
, and estimates used by
management.
Provide
additional information
on items
MD&A
discuss
trends
and identify
significant
events and
uncertainties
audit reports
auditor performed an
independent review
providing
reasonable assurance
that the financial statements contain
no material errors
.
The auditor’s report must also contain
additional explanation
when accounting methods
have not been used consistently between periods.
opinion
unqualified opinion
qualified opinion
adverse opinion
disclaimer opinion
The auditor’s opinion will also contain an explanatory paragraph when a material loss is probable but
the amount cannot be reasonably estimated.
Internal controls
responsibility of management
U.S. GAAP auditor must express an opinion on the firm’s internal controls
The objective of audits of financial statements is to provide an opinion on the statements’
fairness
and
reliability
.
interim reports
typically update the major financial statements and
footnotes but are not necessarily audited.
quarterly or
semiannual reports.
SEC filings
Form 8-K
acquisitions and disposals of major assets or changes in its
management or corporate governance.
Form 10-K
annual financial statements
Form 10-Q
annual financial statements.
Proxy statements
are issued to shareholders when there are matters that require a shareholder
vote. about the election of (and qualifications of) board members, compensation,
management qualifications, and the issuance of stock options.
step
Step 1: State the objective and context.
Step 2: Gather data.
Step 3: Process the data.
Step 4: Analyze and interpret the data.
Step 5: Report the conclusions or recommendations.
Step 6: Update the analysis.