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CFA LEVEL 1 - Exams| Questions with 100% Verified Answers
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CFA LEVEL 1 - Exams| Questions with 100%Verified Answers
General Requirements of Financial Statements - ✔️✔️- IAS #1: requires a classified
statement of financial position, a statement of comprehensive income, a
statement of equity, a statement of cash flows, and financial statement notes
- each must supply sufficient detail of both the current period and comparative
information from the past for the user to understand the company's activity and
position
Elements of Financial Statements - ✔️✔️- assets, liabilities, equity, income, and
expense
- assets: resources of value company owns
- liabilities: debt obligations
- equity: residual interest in the assets after liabilities are accounted for
- income: increases in economic benefits
- expenses: decreases to economic benefits
Measurement of Financial Statement Elements - ✔️✔️- Measurement: practice of
giving a value to the elements of a financial statement
,- Current Cost: (replacement cost) amount needed to purchase an identical asset
or settle the liability right now
- Realizable Value (assets)/Settlement Value (liabilities) value assigned from
selling or liquidating an asset or a liability to a third party that is not the fair
market; common in bankruptcy
- Present Value: involves a typical cash flow discounting based on the estimated
cash flows the asset will produce or what payments are required to satisfy the
liability
- Fair Value: refers to a value decided between knowledgeable market
participants, or some sort of market value (most difficult to determine)
General Features of Financial Statements - ✔️✔️- certain features must be included
in a company's financial statements in order for the company to explicitly state in
the notes that they are in compliance
- the financial statements must be prepared at least annually in a fair and
consistent manner, with accrual accounting, the going concern assumption, no
offsetting, disclosure of material items, comparative information, and consistency
Convergence of Conceptual Framework - ✔️✔️- Convergence: idea of several
accounting regulators working toward a common international set of standards
- convergence of a conceptual framework for accounting is the process of FASB
and IASB creating common accounting standards
,- these groups have thus far agreed that financial statements should include only
relevant and honest information
IFRS vs. US GAAP - ✔️✔️Income Statements
- IFRS-compliant: include all revenue and expenses but allow some items, such as
unusual gains and losses, to bypass the income statement and flow directly to the
statement of owner's equity in a statement of comprehensive income
- GAAP-compliant: include all revenue, expenses, gains, and losses
Valuing of Assets
- IFRS: requires that assets provide some future economic benefit to the company
to be considered assets
- GAAP: allows recording of all assets at fair value at acquisition
Revaluation
- IFRS: allows for more liberal revaluation of assets
- GAAP: only allow revaluation of assets in limited situations
, Barriers to a Single Coherent Framework - ✔️✔️- financial reporting framework
needs transparency which is full disclosure, fair presentation, and
comprehensiveness
Barriers to developing one coherent, global framework include the following:
- conflicts in measurement
- variations in valuation over a global market
- choice in standard-setting approaches
New Products of Types of Transactions - ✔️✔️- new products or types of
transactions arrive on a regular basis
- they may result from economic events internal or external to the company, or
they may be transactions the company has entered into
- keeping up to date on new products or types of transactions allow for improved
analytical skills
Company Disclosures Regarding Changes in Accounting Policies - ✔️✔️- accounting
policies must be applied uniformly to maintain consistency in reporting
- when a change in policy is made, it must be disclosed on a summary sheet or as
a footnote
- changes are generally applied retrospectively
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