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AFA
Block 1
| Question | Answer |
|---|---|
| For each of the following objectives, state what account you would look at to find this: a) financial/equity situation b) activity and results c) net equity variation d) cash variation | a) balance sheet b) P&L c) net equity change d) cash flow |
| What are the 4 steps to analysing financial statements | 1. Reading 2. Analysis 3. Interpret 4. Prospect |
| What are the sources of information | statutory accounts (annual) internal documents budget modelling rating agencies |
| What can this information assess | economic/financial situation economic/financial behaviour future cash flows liquidity short term/long term financing dividends, reinvesting, external financing |
| What are the limits to this information? | inefficient data delays not reliable inflation company characteristics regulations group of companies |
| what is the objective of accounting standardisation | maximum homogenisation, comparability, easy interpretation, decision making |
| What is involved in the conceptual framework | information objectives information requisites accounting principles annual accounts elements register criteria valuation criteria annual accounts |
| What is discretion? | conditions for accounting recognition conditions for recognition of provisions discount rate future cash flows value of NCA held for sale |
| when are cash flows/changes in net equity not needed | in abbreviated balance sheet and annual accounts |
| what are accounting discretion consequences for: a) admin b) auditors c) audit committee | a) increased responsibilities, increased litigation risk, well prepared AA, increased probability of qualifications from auditors b) in-depth review, less permissive c) in-depth analysis of accounting policies |
| how to account for criteria change | accumulated effect charged directly to equity in a reserve account (mistakes changed in same way) |
| how to account for changes in estimations | prospective, and its effect will be allocated, in either P&L or directly in Net equity |
| what is the principle of prudence | uncertainty useful for making decisions helps to evaluate past, present and future events confirm or correct evaluations made previously adequately shows the risks faced by the company |
| what is an accrual | real flow not financial one past transaction/ future cash flow |
| what is the effect of income on net equity | increases net equity - increased value of assets/inflow, or decreased liabilities |
| what is the effect of expenses on net equity | decreases net equity - outflows/decrease in value of assets, or recognition/increase in value of liabilities |
| what are the reasons for creative accounting | decline in profit analyst forecast manipulates compensation dividend control increase share price reduce cost of capital reduce tax |
| what are the techniques for creative accounting | different accounting methods difference in estimates modify accounting criteria artificial transaction log bin extraordinary transactions |
| what are the types of valuation criteria | historical cost - prod cost & liability cost fair value net realisable value - sale (- costs) current/PV - CFs gain/paid value in use - PV of future CF amortised cost - initial - payments (+/- p/l) accounting/book value - on BS residual value - PV |
| what are normal models of financial statements | anonymous limited liability limited by shares cooperatives |
| what is the statement of changes in equity | assess business wealth 2 sections: - statement of recognised income and expenses - total changes in net equity |
| what is the difference between financing statements and cash flow | financing statement = variations in current capital cash flow = variations in treasury |
| how do you calculate/analyse cash flow statements | add expenses minus income op activities > 0 = growth financed > investing = cash increase = investing = short term problems |
| where do own equity instruments go? | to the reserve (including expenses & capital increase) - in this case reducing them |
| what does the annual report do? | expands quantitative offers qualitative explanations |
| what is a financial cash flow | collection - ordinary payments |
| what is an economic cash flow | profit + amortisation |
| what does the audit opinion look for, what are the different classifications? | looks for: - mistakes - scope limitations - uncertainty's that significantly affect annual accounts classifications - favourable opinion - opinion with exceptions - unfavourable opinion - opinion denied |
| what is included in the annual accounts | management report corporate governance report audit report |
| what is the consolidated statements | must be in mercantile registry - global - equity (associate) - proportional integration (joint control) |
| what are the 3 steps in analysis methodology | 1. Accounting 2. Diagnosis 3. Action Plan (corrective actions, investment decisions, decisions related to credit, purchase, sale) |
| what is the analysis process phase? | 1. define the objectives of analysis 2. form questions from objectives 3. choose tools and techniques 4. interpret evidence |
| what 8 aspects are looked at in company analysis? | 1. annual accounts - financial statements 2. risk areas 3. creative accounting 4. applying accounting principles 5. reformulation of statements 6. analysis of statements 7. diagnosis and recommendations 8. conclusion and final |
| what exactly is the conceptual framework? | set of fundamentals, principles & basic concepts whose compliance leads to the recognition and assessment of the elements of the annual accounts |
| what does the annual account need to be? | written clearly understandable/useful way true image (going concern) economic reality of operations |
| what do annual accounts need to be relevant and reliable? | relevant to make economic decisions (prudence) reliable so free from error/bias quality from reliability for comparability and clarity |
| what are the 6 accounting principles? | for influence on patrimonial situation & result - GOING CONCERN - ACCRUAL - PRUDENCE for influence on quality of information - UNIFORMITY - NO COMPENSATION - RELATIVE IMPORTANCE |
| What are the 2 ways of accounting manipulation | 1. legal = taking advantage of regulatory discretion, when the alternative established in legislation allow 2. illegal = contrary to current legislation |
| what are creative accounting practices? | 1. increase/decrease: - expenses - income - assets - net equity - liabilities 2. increase result with atypical gains 3. reclassification of assets/liabilities 4. presentation of info 5. use of related companies |
| how do you calculate cash flows generated by operations | profit + amortisation = income - payable expenses |
| how do you calculate self financing capacity | cash flow - dividends |
| how do you calculate free cash flow | cash flow - NCA investment +/- working capital variation |
| how do you interpret CF statements | 1. interrelation between 3 components of state (operating, investing, financing) 2. reconciliation of economic and financial surpluses from operating activities |
| what do you need to consider when interpreting CF statements | sector average maturity period phase of life cycle |
Created by:
patriciam03
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