BOOK 3 — FINANCIAL REPORTING AND ANALYSIS Readings vad Lnsepiny Qnecome Searemeats Studly Sesion 7 - Finsoeial Reposting and Azalyesi An Introduccion Sradly Sesion 3 — Financial Reporting and Aualyee ‘The Income Starement, Balance Sheet, and Cash Flow Statement Seady Sersion 9 ~ Finsacial Reporting and Analysis: Inventories, Lomg;-Teem Aoset, Deferced Taxes, and On- and Of Balance-Shect Debt Seudy Session 10 ~ Financial Reporting and Analysis: Applications and Trcecaatonal Standards Convergence . Self-Test — Financial Kepottig and Analy. ocenuas Inds. a a Page 2 LEVEL 1 WOOK 5: STNANCIAL REPORTING AND AKS 129009 Kaplen, Ing, 8 ~ight ener Pah asd in 2009 hy Kapa Selowase einted in she Uncted Stars of Auneies, ISBN 5.4977 949: Pon; 45500107 Test gd td Urchin CIS a Car Fe ler nant eater ems eo Transl np? war wera omer woe place ren wht re scene rf the fee ‘edhe Ka ian ‘Cpe aeetilworin wnkin de ate cep piers oF OES ate llenng es eanyeatecndunce So sere Capea 201), Ea cere eases ted Spcalel fc auld “turclgg GusneSummtee tnd 12s? cus haw CFs! Ugn ate en nas Suis of catarl duc and C2 esac lal lesen silts ita psnvota how CoA levine Ag fered Fal tan Cle Pas sie shold hee in opti rah he inl ning a 7 Sein sri hve Sou cree ered erg bi ado ena hse Ne ©2009 Kaye READINGS AND LEARNING OUTCOME STATEMENTS RUADINGS ‘he fog matali ese of te Bwana’ Regering and Anais pincipiee asi tans te eas ont taementa ie ove by Cte Fala, STUDY SESSION 7 Readiag Astiguanents Fins! deporting and Analyt, CFA gram Cunecculare, Volume § FCA levine, 260} 20, Pingel Satonet Aealsis Am lnrenacson 3A, Finencial Reporting Mesias 3°. Finereial Repueting Stanleels STUDY SESSION 8 Realing Assignments Binawiad Reporiny sod Analyt, CFA Progra Ch (CEA Tostinue, 2010} 42, Underatgeding the Tine Statement 53. Understanding che Ealece She Undeeraraling the Cash Flee Seicemene 3B. Financial Analyse Techniques page 152 el, Yo ane 3 pages? STUDY SESSION 9 Reading Assignatenns Pence’ Reprsig and J ECT lasinte. 20108 8, CPA Program Custiculum, Voleme 3 6, Ineauares page 173 BF. laongelivcl Aes ge 108 BRL thane Tans page 229 BY, Fingers Lisi an Laser STUDY SESSION 10 Reding Assignments ional leporvy, end Anak, CHR Programs Carrieuan, lune 3 {CFA Instinne: 2008 40. Finercial Repwotng, Quality: Tel Hage aml Aegon Waseng Sign pags 288 4%. Auguuning Shenanigans or the Cash Flgw Satenene age 302 42. Financial Sesemene Anais Apatiations vate 208 44. Tncenatignal Senses Converge: rage a6 ool, = erase fepornng and Ansble oniaga and earning Outoome Svterenee Paget be fils nstrial i evgnel ase be faring seem sce LRARNING OUTCOME STATEMENTS (1.08) vine of Binaaria Peporting nd Anofyit pronciphs rere firth by CEM Psa #0, 31 The pet cvoragecormypond withthe filer CPA oie Financial Stzemene Analsie An Introduction ‘The candidate should 2 ae a discuss the oles of oancal eporiag and fnercialsetement eaalsi.ipage 11) 1h discuss the role of ery Snancial sateen ficenteseaerben, balance shee storerteat of cai ws, al semen ut changes im venet equ in crluatzg 3 company’s peformance and financial poscor. (pepe 11) discus the imporence of fnancil statement notes ced supplemeneas information including diselosr-s of counting method, estimate, tusumprions, ond managers dsvussion ex abs, ipage 12i 4. disse the ectve of aus of Bnencalsentemenes, the ype ot audit repons and te importance of eee intern. corstals (page 131 densi and explain informacion sonrees other than anna Gnarctal eatemens arc sgoplemenar ifoeroton thar analyse sein Baarcialseatement nals page 14) 4 describe che see in the Sncecial seacement analosis Feomtewadk, (page 5 args vad The ropcad coverage cmsponds wih she iting CTA Laver asipned siding Financial Reporting Mecher “The candadare shoul be able co 4. explun de relelonship of Bnencil sreremenc elements and arcounes, and classify ccoune neo che fnanl tacinentcesnent, (page 201 b. esplte che accounsing equation in its Sane and expanded foirs. (page 21! explain she pencese of recording busier cransactions using aa accoating system based on the aceouaing equations. (page dcxplaus she need for accrua'sané other adustments is pioparing fnescial satemenc. ‘page 232 eaplin che selucionships amang rze income txerneu, bal ft oash Aowes and auueaent of owner equi (page 241 {degre che Tow af infomation in as acchuncingspraetn. (page 26+ fg explin che ae of she reno the secounting prosats sauity eal {png 263 Ph spina amerage crepons anh the flloxng CPA Financial Repurting Standards oe ead heal he able ts splint objec nf Rata satenenns and tus importa of porting, ftandaed ie occurty anaes sabato Gage 3 be explain che role ef ena seattg once. cic rhe Invernaonal Aevum, Stgrdanls oul an the US. Financia. Aaouulry Sanande Board, nd regulatory ais hots suck athe Ievereaiqnal Ongunivarign of Securitien Commissions, the UA. Frama! Servers Authariey and the US, Securities snd Exchange Comm'ssion in etalishng snl exloring ingneial porcine, cds tpg 33 ats aioe residing 12000 Kay. ‘nk 3 ~Lingacial Repos ne Anas Heading: nd Learaing Ouicwat Sessements 6 dscuie the ongoing barsets 1 developing one universe ly acepted se of financial repocing andar, ‘page 30° 44, desetibe she Ineznational Financial Reporting Srandacds (PRS? framework, inching che qualccive choracecsics of Anancal eacements, tee requized reporsing elements, and che eorstsines and essarpeions in prepating nancial stores. (rage 30 ‘explain the graetal eaguiremeats for tinancial yatements. (page 38 £ somporesnd concast dey concepts of tinaacia.reporcing stnderds under LIAS, fend altesative reporcing ascems, and decks cae implications for fnancil ‘nelyss of diering Hnancial reporting svscems, (page 891 densify he cheracsertise o x coherent financial teporcing fiemevwors and bere ro rearing «coherent Enancis. potting nerwoti (page 4! 1, douse che mportance of motleoring development in financial eporung srandevds and of cealueing sxsnpany ciedlosoree of ngniicane accountng polices, (pepe <0) 32 ‘Te spical covesae coverpende with se folowing CFA Tete aigned sending Undetsianding uve Income Statemcut ‘The candidate si:0u%2 beable co 2. describe he weinponenne of the income sacemene, and comersct ani sauemene using tke leeenanve piesenratian formats ef har statment. (page 1h caplain ize general prciphe of revenue recognition and acstua. accnancing cmsanstate specie revenue cceogniuoa applications (aching accounting 1s neallinent sles, Bate wanisctions and g-oee and net sepmnting of event). and discuss ube inplicatoas of revenue rogiion principles Zu faacal analysis, ipage 48) discuss she peneal pincer of equereereengition, sua ae she meshing spo Ze eapunae nsgnitien applications (including dspessition cal longrtcia ase and ineentory methedel, and che iapli ‘evngion juices For Rn cal smal. {page 543 A. enmioteate: the appopritis ethan nf dspresiatey hingterm sets ‘ating fo invcnuery, o abwortving intsmgiles, based an fics that aight jntlacvoe ta dosision. page 58) 1 distingsidls harwurw she nperting anu wownperating enbaponen.s ofthe inoue tater guage 6 Figans the naa n.porting tratmene anal analyse oP nas anring tewae finaling diseostinnel operations, eaesordinary eng wl lung oF inequct iean) and changes in xecuunigstandene. (page 60 fe deserion che coryiomenty of earnings pr share nl ealenlate x campy casnings per share (hut: base and eile scuings per shat ow both ple and comaiex capital steuctur, (page 63: hy ditfeennise beseoen dlucive wad xasiilocivesecorices, al isons the Jmplicaions of each forthe exthings pec sare celcuetion. (page 83. i, desctibe and ealculne comprehensive income, page"? i. ara che accounting clstfcrion or Sean char are exci from the incon fratement boc adece owner equicy and lise the major types of ems revising thar tecemieneipage 7) ion of expense (©2008 Kapa I. su § — Png poring ane nal [Rowdngs 2nd Lesenig Lreoe Sexerente be apc sooengecameptde wish be flloniag Cbd Zaire eigen’ wading 435, Oaderstanding the Balauce Sheet ‘he saalidate shoul beable ws silica an esipet ae compact nf ae balance sheet and dics ube ute fis alice seu in Svancil analeia Cage Be I dssribe sh various fovirate uf alanis shee pessitaton, “age HB wea av ase ala Habis arise from the acciual proves (ge 86) A compare and eanitan euecen and roncureent aot ad iabilit. Loage 81 fe npisia the mateubaneh hast fe. itanal wt ad fata a te find Fables. inched suerte, wt fils, angle ass sad evangilik sete. (ge 871 f damonstate the apponpuiaus chasfcntione and reas! acsuting satineat Fox varatalle aud nonsnatetable fies its ups bal a ate a wv the ccna ibis ngs 2" hin the smnponenis nf asus ty age 4 ind atateincres of cuangse ia els. page 95) gp and Ih nuaypret abel Whe pica coment soropencs wet hf 34. Unceraiing the Cast Hane Siatenent he eka nl st 1 1 sntgane gua annie! ea Mine hor eptatings stating, an Souci ing CK ttt oad rainy se in sal ls ca le iss ay atateg vn ws a thes esto. is ies ofl ns pe 188) o. esr how wits ineasting ara Tani activities ane nyc ug VAY ampare aa eouteiat the key diene ia exch Mose aerets pepe virdes iteragriemal Guancal repurling stavlande ane US. generally ase evounting plircipls. (page 194, Eanes the iTnews dees are indice watt of itsecing sah row perting sul ae expla thea guaent i for oF och. page 105} fe demoneste Ie sep in the preination ating ani ican cash Rove steamers, juli how cash Bowes eae be eae using nome sete ent snd bc ance sheer date page 1021 Gaui ee procens oF or vering a ens Boe staeement fom the indoecr ro he Ener metiod of presentation, (page "133 s-ent using both tril eumrency amounts sed corazzonvize cat How srareraenn. (pe | 18) 1, explain end calelace fee cath Hom tthe fir, fee cash Hw ce eauiey ond ‘cher eat How eaios (page 16) he raplestervenagecorepena woth the follwye CTA 4. Biaancal Andysls Techniques ‘he candids st0uld he able co ‘3. sralnace and counpare compaciestaingrario anclys, common-tine Eman [etemien:s an chests fneactal anaas. (page 1941 f». dessribe ce lincations of atin eaalyn. “page 147) descie the varinuss3ciniquee of sommen-iac acalyebs and interpret the of such atalpais. (page 1373 4. eset. classi, aad iresprot activa, quid. aaleeney, ponbial iy and ‘a tion tin, page 14 ute argued vsding age ‘ers Kaplan Te oul 3. Cine Reptting sags eadinge and Loneing roe Statens leconetrate hoor ratios a elated and hove ee valucee a comapery wing & comkinicion ot different reios (2age 149% emenecate ce enplisrion ef and inerprecchacges inthe compen pas of the DuPont anc yais (se decorapovcion of rein oa equiry, ‘oage 154 caleuleze and inerprer she zaios used in equicyanalves, credit analysis, and segraear analysis. (page 198 describe how rio analysis and exker techniques can >e used 10 mode: and forecast ceninge,tpoge 16 OND omsaponds thse fining CVA Pcie andguad ndag 36. Inecmiosie The candilate should be ale 2. eaplein !2KS and U.S. GAAE rules Fer dotecainag iavontouy cet. secaing shies cows ave extend and metkods of ellacarigenaesbeereen eset of eds sold and iascatory. (pres 74h Ih isc ns insentoviee ne report che Sane starcmshisacal am the Tova feat os ac) seliveble walucis usa ane appliod. (9 6 sage sung soy esa anf goin vag the HO. Sprite averages, ain LIEO mcikody tsuneo nny al spin the 2 alge canard tho ueeflnes of instr ad ost of ga sold ats prove by the FIFO. weighted owe ge cou, sued LIEO metheale woh piece are 1) sable, 2) deancasing, or 3 rereading, page 1 lace and aes nil for ning inary manage spas 1821 fe egal ie Seance agremunts ul oempanios using fina iuasnory Devout mtd by comparing el desing fe of dhe lien rertarly on cast of goaded inventary halances: gral y hee frail stated items page 183s 1. camaure al deseibe the ects et che choice of imeemtony mtu ort pret abi lini, arive. end ao ouncy aro Ips fg ealsulat adjetztents eo ceportel financial slemen: slate ty inventory su priors co ald ip conmpering and eralcacing zompesie. page 185) 1 Gisems the eennors chee a LIFO reserve might “ise or decline during 9 given petiod andl dsxss the implicacons for financial eoali. rpicl coverage cemerponds ob te fllowing CFE Intute iene sean Long-Lived Ancte “The casedae should be ah‘e to unt staards slated the capinabzanon of esperdicues od aes, inelndaeg scenes oss. {page 188 fm gute and esribe dhe sifocts of capitals versus expensing a act income, tbatchedels cuit, sid Now Hoss apecainns, ced Gaze setae including I effet oa the interes vow stage i of capiaieag Lester coat. Cpege 199) “phir she vinaunatsesee hich wfiware develoaman: cost and seseach and Aeschypresn canteaneepialvad. (ges 2049 ‘don't edilarent sdhopracatio snide, lanp-lived tangible aera AP ha aeeasive a sth, eri lies ane salvage value Tce 2 sumpauys Seung watering, aad HES. page 208? 5450) Kalen vg ales Finis RopustingaedAnyie endings and Larsing Outsene Suess 38 das 1 the wie of fixed arse: declovarse co comzare companies average age of AAeprecable avers aud ealeulae,neng vuch Waclosures, she werage ag: and ‘depeciebe ike of xed sess. (page 210! describe amorsizaoa of fatangible assets with ince ure ives and che ‘esinates thar aGéet che amorczaron celculecons. (page 2129 diss the liabliy tr closure, removes and enviconmconal fees of lang ‘pecting sits and discuss che nau saesnens impact and rai that isle. ipage 212) he sons the imps of aks or exchang, 1. Zefine inpalmtent of lang-ived tangible and intangible asses and explas hat (Toa such imyatineut es an a compauy’sfinzacial sa:smenus aud tsi. page 2161 jeleular anal deseile ho che inal and sng-ived eff 7 4 tsvahations on financial sow (page 2194 of long-lived eases ot financial 1 spins merge crests te lowing CO incr died ag Incoe Hiner he caine el I aie te in the dTonancos helene aesnuniny plod tall inetwe, fine arg ser, inchaling defense tas feta te ibe, slain allowance: tne payable, and income =x expen. pays 229) Th lait how dr ie aad ats net amd th Fata sat leserninw how company's defer oe Face ae seer snub Ireaved For the puryoats of anil ana fae 230; deen he te le a cen aera Fai tes, (page 2317 1. Calon nasi ti extn nau ask faa Geer van to Aeterna aa Fabs anal lee anel teapot be Bromeil seteruents lane ange hinge aa (phe 2334 fe ralate the inact ula rancchangs an 9 eompanyeianeial oatemient and rats. ‘page 2361 " distinguish verween lemparary ame prune items prtne Ramil neuane tnd cable incance page 2371 fe Tacs abe valatin alc Tr defer ts wget en iy eared and ‘ekat impact ic hes on financial saserwite. (page 24M be conuere ard conzest a company’s defer tx tens page 2411 iL analyze dscloraesselecog wo sleferred tx items and the effective cx rte reconciliation, and disuse how infocrecion include“. seve dvelosuees eect: ‘company’s financial sarements and financial -wioe (page 263) ji identity the ew prosscne of and sieeences beeen income ee arcoumting under ITRS and U.S. GAAP ‘page 245) a er Tie ropca covenage cormaponde with se folownng Long. Tee Liabilities and Leases The caadidace should 3e able 4. saapuce dhe effec of debe scuance end sunortizaian of baud d:scousee aud [ettiume 97 fuanealsuremeni and ratios. (page 256) bo. spain the eae nf debt coeenante in pitectingetedinots by roving & Tampon aig 1 ivan, poy divdeads, ou make cobs: apevatg and sategic asinine {pags 26 ase aig reasing: 22005 Kaan Book Func Reponing se Ansan Reng and ring Ousoroe Scnane fe cee he the prevention nl litsnianess¢ ating mn, Gnsning Hsin page 265) AA doers che oferta caging iene ae ne the market vals of le. and fon fnucal sutemants nd ens ype 2633 se thal eo gprs of aes oi eguiay eras Gwe det ad el: with sears neler eulte the offen inane ab aych Tnatutste nas a p's abla oa. page 268, 1. ice le ceiestinie fr Wing arsine ol pcan hen aa the incentives for erring he lene acepteaing leaves alee cfr pase 268; ie cherie the veut of Gases gal sgrvating lowes ye fanaa eee sul cation of le estes al leave, pe 268 he linings bv teen a oxen and list Gann ese, cl ae ee the eftens on the financial uatants alee the ese (pt. 2753 i. deserts the types ane ecenamic comsrqurnens of of balame sheet nancing ane derermine how rake or pay contrac, thracghpt arengemers, and che sae of resivabes flies Bngntial vate ens wud selec ance rvs, (page: 278) The rpica covrageecemsponal wn be Plloing CPA arigned wang 40, Ginaacial Reporsing Quali: Red Flags ad Accounting Wrrning Signs ‘The canideresborld be ab. 0 a deserbs incentives shat might ind undecrepore exeaings. page 2882 wnpary'¢ management co ovecreport OF 6 1 cotitiee thes WL esl in ¢ low quiiey oeneninge. page 289) S) deserbe the “rand eisng.e,” “page 289! a sine aeors thee ng; lead eo audolenc accounting ree co T inceccves and presures,? oppore:n-vies, and 9) areincdes aa rasenalizasons, (page 290? * otimen scea:ariag wataing signs and snecods Hr detecting each 1. descr be the eccount.ng wauning signs toleed 19 tke Laron accounting scans pags 294 e scsnuoting amning signs relead so the Suzbeet accouncing scandal. (page 2953 he expe cocenige ected ea be fining CEA Incite ipa veang 41, Accounting Shonanigens on the Cash Move Seateanest he candidere dh. dhe ale ana ps and seuss che ‘o'asing ways 1 ranulas he cash Fow naersent fo sarcaning ont ye + Tinrcing nf payable, + sotiziatien af earicaley ane Ws teed Inylacks off ily in of enrings.tpage 302 889 Kaplan, I Doge Book 3~ Fail epost al us endings ud Less Quito Susy The tpiontcnsemge corresponds wa he 92, Binansal Statement Amato: Ar Ticcanlidave sho be able vo sey C8 Fserae ake reals a. alate 4 vamparys jt rancid perkormauce and expla oe 9 euey’s sMeaexy i reece in past Braacal prefurmanie, “page 308) 4 Oe painion of x compary’sfurare ner invame and ch Hom 3095, . dese’oe the ole of Fracuial sarememt amass in anversing the exedie quality of dese investment. (page 320 ‘of Ezancial sesement ana ysis. screening fur potential ecuiey met, {pase 3:1, determine and just appropriate analyst aljsrments ro 2 company’s nancie! starements ro ficilitae comparivun with avuthee company ‘page 311) ‘he eapeal coverage corresponds shh re flung CEA Joti 48, Inexpational Standards Convergence ould Se anigned wenden 2d explain the major incetational sccuansing sraadands foreach aster and ili eategors on. che balance sbecr and ee hey dileronces fiom JS genssally accspeed accounting principles (GAAP). fpage 316) b. denrify and explain the mai iteraational ascoursig seacdaids far majot sevenus aed ex ori on te Income scence de ky difesences fio 3.3, GAAL “page $203 5p and saplaie che major diffeceness Serves eonuniing aasdacs en ineuatianal and US. GAY ig che sretznent of ws satsnant of cath Fews (page 323% es eosssn inesuagenal and US. Gi seca, aid the street uty fv some cortmanly useé <acial satios page $23) Tage 09 Kapa ba