Block 1
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| 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
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| What are the 4 steps to analysing financial statements | 1. Reading
2. Analysis
3. Interpret
4. Prospect
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| What are the sources of information | statutory accounts (annual)
internal documents
budget modelling
rating agencies
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| What can this information assess | economic/financial situation
economic/financial behaviour
future cash flows
liquidity
short term/long term financing
dividends, reinvesting, external financing
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| What are the limits to this information? | inefficient data
delays
not reliable
inflation
company characteristics
regulations
group of companies
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| what is the objective of accounting standardisation | maximum homogenisation, comparability, easy interpretation, decision making
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| What is involved in the conceptual framework | information objectives
information requisites
accounting principles
annual accounts elements
register criteria
valuation criteria
annual accounts
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| What is discretion? | conditions for accounting recognition
conditions for recognition of provisions
discount rate
future cash flows
value of NCA held for sale
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| when are cash flows/changes in net equity not needed | in abbreviated balance sheet and annual accounts
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| 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
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| how to account for criteria change | accumulated effect charged directly to equity in a reserve account (mistakes changed in same way)
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| how to account for changes in estimations | prospective, and its effect will be allocated, in either P&L or directly in Net equity
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| 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
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| what is an accrual | real flow not financial one
past transaction/ future cash flow
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| what is the effect of income on net equity | increases net equity
- increased value of assets/inflow, or decreased liabilities
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| 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
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| 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
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| what are the techniques for creative accounting | different accounting methods
difference in estimates
modify accounting criteria
artificial transaction log
bin extraordinary transactions
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| 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
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| what are normal models of financial statements | anonymous
limited liability
limited by shares
cooperatives
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| what is the statement of changes in equity | assess business wealth
2 sections:
- statement of recognised income and expenses
- total changes in net equity
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| what is the difference between financing statements and cash flow | financing statement = variations in current capital
cash flow = variations in treasury
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| how do you calculate/analyse cash flow statements | add expenses
minus income
op activities > 0 = growth financed
> investing = cash increase
= investing = short term problems
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| where do own equity instruments go? | to the reserve (including expenses & capital increase)
- in this case reducing them
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| what does the annual report do? | expands quantitative
offers qualitative explanations
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| what is a financial cash flow | collection - ordinary payments
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| what is an economic cash flow | profit + amortisation
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| 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
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| what is included in the annual accounts | management report
corporate governance report
audit report
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| what is the consolidated statements | must be in mercantile registry
- global
- equity (associate)
- proportional integration (joint control)
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| 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)
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| 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
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| 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
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| 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
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| what does the annual account need to be? | written clearly
understandable/useful way
true image (going concern)
economic reality of operations
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| 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
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| 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
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| 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
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| 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
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| how do you calculate cash flows generated by operations | profit + amortisation = income - payable expenses
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| how do you calculate self financing capacity | cash flow - dividends
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| how do you calculate free cash flow | cash flow - NCA investment +/- working capital variation
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| 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
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| what do you need to consider when interpreting CF statements | sector
average maturity period
phase of life cycle
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Created by:
patriciam03
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