Reading 29 - Intro To FSA

Sunday, September 07, 2008

5:11 PM

Financial Reports - purpose is to provide info on a company's financial position

and performance

Major Statements

• Balance Sheet - snapshot of a company's position at a point of time

• Income Statement - statement of operations, measures profitability over a period
of time
• Cash Flow - measures change in cash position on balance sheet
o Assists in measuring liquidity, solvency, and financial flexibility
• Changes in owner's Equity - measures changes in the Equity accounts on the BS
• Footnotes - required and audited
o Accounting Methods and estimates
o Assumptions made
o Asset/debt disclosures
o Off BS financing
o Pension/taxes
o Contingencies or litigation
o Segment reporting

• Other statements
o Supplementary schedules - not required nor audited
o MD&A
• Management opinion on operating performance
• Planned CAPEX
• Effect of trends in industry
• Material effect of extra or unusual events
• Discontinued operations
• Auditor's Reports
o Management and not auditor is primarily responsible for financial
statements of company
o PCAOB issues auditing standards
o 4 types of opinions
• Unqualified(desired) - reasonable assurance that statements are free of
material misstatement due to errors, fraud or illegal acts
• Qualified(Except for) - when there is a material instance of
noncompliance with accounting standards or when the auditor is
limited
• Adverse - multiple instances of noncompliance that are so material the
financial statements are not fairly presented
• Disclaimer of opinion - auditor lacks independence, FS's are unaudited,
or significant limitation on auditor to complete audit per standards.
o Auditor's also issue opinions on internal controls but management is
responsible for effective internal controls
• Framework of FSA
o Perform the following steps
o Identify the purpose and context of the analysis
o Collect the data needed to perform the analysis
o Process the data
o Analyze and interpret the processed data
o Develop and communicate conclusions and recommendations
o Perform any necessary follow up procedures.