Exam (elaborations)
CFA Level 1. FSA Questions and Answers 2024
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Exam of 18 pages for the course CFA at CFA (CFA Level 1. FSA)
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CFA Level 1. FSAIFRS Conceptual Framework - answer1. Fundamental characteristics of financial
statements are relevance and faithful representation.
2. Elements of financial statements are assets, liabilities, and owners' equity (for
measuring financial position) and income and expenses (for measuring performance)
3. Constraints on financial statement preparation include cost versus benefit and the
difficulty of capturing non-quantifiable information in financial statements
4. The two primary assumptions that underlie the preparation of financial statements are
the accrual basis and the going concern assumption
Describe the role of financial reporting and financial statement analysis - answer The
role of financial reporting is to provide users with information about a company's
performance and financial position
The role of financial statement analysis is to utilize financial statements to aid users in
making economic decisions
Describe the objective of audits of financial statement - answerThe objective of audits is
to provide an opinion on financial statements' fairness and reliability
What are the type of audit reports? - answer1. Unqualified: The best kind of opinion. No
departures from GAAP
2. Qualified: Mostly ok. Just a few things that the auditor points out.
3. Disclaimer of opinion: The auditor can't give an opinion for some reason.
4. Adverse opinion: Really bad. Significant departures from GAAP
What are some information sources that analysts use beside annual reports? -
answerQuarterlies, Semiannual reports, proxy statements, earnings calls, press
releases, third party industry reports
What are the steps in the financial statement analysis framework? - answer1. State
objective of analysis
2. Gather data
3. Process data
4. Analyze data
5. Report the conclusions or recommendations
,6. Update analysis
Describe the importance of financial reporting standards in security analysis and
valuation - answerFinancial reporting standards are designed to ensure that different
firms' statements are comparable to one another
Describe the role of financial reporting standard-setting bodies - answerThe role of
financial reporting standard-setting bodies is to create a set of reporting standards that
companies abide by. The two main standard-setting bodies are the FASB in the US and
the IASB for the rest of the world.
Describe the role of financial regulatory bodies - answerFinancial regulatory bodies
enforce compliance with the reporting standards set forth by the standard-setting
bodies. The two main regulatory bodies are the SEC in the US and the FSA in the UK.
The IOSCO is an international collective of these regulatory bodies.
Describe the status of global convergence of accounting standards - answerGlobal
convergence is well on its way, with more and more countries adopting IASB standards.
What are some ongoing barriers to developing one universally accepted set of financial
reporting standards? - answer1. Changes of opinion among standard-setting bodies and
financial regulatory agencies
2. Political pressure within countries by groups that would be affected by changes
IASB Conceptual Framework: Fundamental Characteristics - answerThe fundamental
characteristics are:
1. Relevance
2. Faithful Representation
IASB Conceptual Framework: Enhancing Characteristics - answerThe enhancing
characteristics are:
1. Comparability
2. Verifiability
3. Timeliness
4. Understandability
IASB Conceptual Framework: Required Reporting Elements - answer1. Assets
2. Liabilities
3. Owners' Equity
4. Income
5. Expenses
IASB Conceptual Framework: Constraints on financial statement preparation -
answerConstraints Include:
1. Cost vs. benefit
, 2. Difficulty of capturing non-quantifiable information in the statements
IASB Conceptual Framework: Two Primary Assumptions - answer1. The entity is a
going concern
2. Accrual basis
General requirements for financial statements under IFRS - answer1. Required
statements are income statement, balance sheet, statement of changes in owners'
equity, cash flow statement, and explanatory notes
2. General features include: Fair representation, going concern, accrual accounting,
consistency, materiality, aggregation, no offsetting, reporting frequency, comparative
information
Identify characteristics of a coherent financial reporting framework - answerA coherent
financial reporting framework should exhibit transparency, comprehensiveness and
consistency
Identify barriers to creating a coherent financial reporting framework - answerBarriers
include issues of valuation, standard setting and measurement
How does a company disclose significant accounting policies? - answer1. Under IFRS
and GAAP, a company must disclose their accounting policies and estimates in the
footnotes and MD&A sections.
2. Public companies must disclose the likely impact of recently issued accounting
standards on their financials.
Describe the components of the income statement - answer1. Revenues
2. Expenses
3. Gains
4. Losses
Describe the alternative presentation formats of the income statement - answer1. Multi-
step: A multi-step income statement provides a subtotal for gross profit.
2. Single-step: Does not provide subtotals for different kinds of profits
Describe general principles of revenue recognition - answerRevenue is recognized
when earned and expenses are recognized when incurred
How does a company recognize revenue for a long-term contract? - answer1.
Percentage-of-completion: Recognizes revenue in proportion to costs incurred
2. Completed-contract - recognizes revenue only when the contract is complete.
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