Reading 51 – Portfolio Management: An Overview Portfolio management is about creating a... 3,000 CFA® Practice Questions – QBank, Mock Exams, and Study Notes, 3,000 FRM® Practice Questions – QBank, Mock Exams, and Study Notes. Two primary assumptions that impact how financial statements are prepared are Accrual Accounting and “Going Concern”. Operating Profit is sometimes referred to as Earnings Before Interest and Taxes (EBIT) and is the revenue left after subtracting all operating expenses. When income tax rates change, all deferred tax assets and liabilities are adjusted to reflect the new tax rate. More aggressive accounting techniques use creativity to overstate financial performance. Concerns about missing market expectations for earnings can lead to more aggressive accounting techniques in order to artificially meet public targets. Privacy Settings. For the latest information on upcoming exams, please visit our CFA Exam Updates page. Below you'll find current study session outlines by level. The first level 1 CFA exam book includes 2 topics, namely Ethics and Quantitative Methods. Companies must include disclosure about many of their tax-related financial statement items. Each study session includes learning outcome statements (LOS) and source references for the readings. Company management can have incentives that encourage the production of low-quality earnings reports. Investment properties, which are used to generate non-operating returns, can be valued using either a cost model or fair value model under IFRS. Total: 57. There are several required elements that must always appear on the income statement. When the opposite occurs, and a tax deficit is created, this is a Deferred Tax Liability. Performance ratios from prior periods can then be used to calculate forecasts for profitability and cash flow measures. Your course instructor is Keith Tan, CFA, who has passed all 3 levels of the CFA® Exams consecutively from 2014 to 2016. Dividends paid must be classified as financing activities under GAAP, but can be either financing or operating under IFRS. Search. Intangible assets with indefinite lives are tested at least annually for impairment. Expensing a cost rather than capitalizing it will reduce profits in the first year, but then increase it in the following years. Impairments are recorded if the carrying amount of an asset exceeds the recoverable costs. These two may differ depending on how tax policy overlaps with reporting standards. They make up the basic accounting equation: Balance sheets are useful for highlighting a company’s abilities to meet its operating liquidity needs, keep up with debt obligations, and make distributions to shareholders. Inventories and Cost of Goods Sold are two important items contained within a company’s financial statements. There is a choice made by companies whether these items appear on the balance sheet as inventory in the first place, or just expensed as soon as they are acquired. This applies to the costs for purchasing or building property or other resources, including the interest costs incurred if the company takes out loans. Completed: 2375. The goal of financial reporting statements is to provide a complete picture of the financial performance and position of a company. 2019 - Level I Archive $ 65.00 CAD: This gives you a reference to the previous level’s content as you move through the CFA Program. Get your Kindle here, or download a FREE Kindle Reading App. This value is important because being able to convert between financial statements using the different systems will definitely appear on the exam. As stated before, IFRS includes debt issuance costs as part of the bond’s carrying amount. Two common techniques for analyzing company financial data are Ratio Analysis and Common-Size Analysis. A lessee will prefer an operating lease to a financial lease. Assuming an environment of rising prices over time, inventory values will be sorted as FIFO > Weighted Average > LIFO. Also, IFRS allows deferred tax items to use projected tax rates that have been “Substantively Enacted” even if they are not fully in effect, but GAAP requires the use of rates that are fully enacted in law. Similarly to the depreciation of tangible assets, intangible assets are amortized if they have a calculable, finite useful life. The costs of these assets are usually capitalized, rather than expensed at once. Ethics is a major section of the CFA curriculum covering the code of ethics, professional standards, and global investment performance standards (GIPS). IFRS and GAAP differ on how inventory balances are to be calculated, with IFRS requiring the lesser of Cost and Net Realizable Value and GAAP requiring the lesser of Cost and Market Value. Analyze and interpret the data: Review the data and use it to reach a conclusion or recommendation. Liquidity Ratios measure a company’s financial health and ability to meet short-term obligations. Under GAAP, value write-downs cannot be reversed. Learn more in our, Marketing Resources for CFA Charterholders, Ethics for the Investment Management Profession, Code of Ethics and Standards of Professional Conduct. Poorly designed managerial incentives create motivations for questionable decisions. Companies are able to combine individual business segment results if the segments are small and share common factors that allow for sensible grouping, such as the type of business or sales locations. As covered earlier, accrual accounting means revenue and expense items must be recorded when recognized, and going concern is the assumption that a company will continue in business for the foreseeable future. Income Before Taxes is reported on a company’s income statement and is calculated based on the applicable reporting standards, while Taxable Income is the portion of total income subject to income taxes by the taxing authority. Posted by: Kaplan Schweser Published: August 6, 2020. The statement of financial position (Balance Sheet) provides a description of the company’s financial position at a particular point in time. Certain market conditions make it easier for low-quality reporting to occur. The Conceptual Framework outlines the primary characteristics behind IFRS, which are Comparability, Verifiability, Timeliness, and Understandability. Current taxes payable are determined using the tax rates as of the balance sheet reporting date, while deferred taxes are measured at the rates expected to apply when the assets are realized. Each study session includes learning outcome statements (LOS) and source references for the readings. To obtain the charter, candidates must pass all consecutive levels of the course. The statement of comprehensive income (Income Statement) shows the company’s financial results over a specified time period. There is a multi-step process for converting cash flows from the indirect method to the direct method. The significant risks and rewards of ownership of the goods have been transferred to the buyer, The company no longer retains effective control over the goods sold, The economic benefits of the transaction will probably flow to the company, Evidence exists of arrangement between buyer and seller, A product has been delivered or service rendered. This creates an excess tax payment by the company over its expected tax expense that the company can recover in future periods. Each topic is further divided into readings which cover a specific area of that topic. IFRS allows reversals of impairments if the recoverable amount exceeds the previous carrying amount, but GAAP does not allow for a reversal of an impairment once it has been recorded. Log in Sign up. Common examples include the Current Ratio and Quick Ratio that compare liquid assets to short-term financial liabilities. Forecasting company sales is typically based on a top-down approach that uses industry and macroeconomic trends to determine future period growth. So, it seems that the 3 hardest level 1 CFA exam topics are: 1. Browse. READING VIDEOS ONLY High-quality reporting allows an analyst to make accurate assessments of a company’s performance. The quality of a company’s financial performance is a good indicator of its ability to continue meeting its financial obligations in the future. When bonds are redeemed (repaid), the difference between the cash required to redeem the bonds and the carrying value of the bonds on the balance sheet is booked as a gain or loss on the extinguishment of the debt. Liabilities are anything that the company owes. Allow analytics tracking. Liabilities are also reported base on whether they are current or non-current. This new item reduces the value of the deferred tax asset down to its new anticipated recovery value. Follow-up: Periodically update and review the data to determine if it still supports the original conclusion. By putting them on the balance sheet as assets until sales are made, companies can defer recognizing them as expenses until a later period. For Property, Plant, and Equipment, the cost model is the historical cost of the item less accumulated depreciation and the revaluation model is the fair value at the date of revaluation less subsequent accumulated depreciation. There are a number of liquidity and solvency ratios in your ratio sheet, downloadable in the AnalystPrep.com’s platform, that you can use to evaluate a company’s financial health based on information found in the balance sheet. Coverage Ratios use income statement information to measure a company’s ability to cover its debt-related payments. The DuPont Analysis method of decomposing Return on Equity is an important part of the financial analysis section. There are 57 readings in 2020's Level 1 Curriculum (vs. 58 in 2019): 1 reading from 2019 removed (Reading 7 - Discounted Cashflow Applications) No new readings added (yay!) Revenue is the top line on the income statement and is the amount of sales that the company took in. Be warned: while the overall material in the Ethics section appears fairly straightforward, the way it is tested is not. In each reporting period, the change in net pension asset or liability is recognized as profit or loss under Other Comprehensive Income. There are four financial statements that are used to summarize a company’s financial positions and performance. Rather than amortized over time, goodwill must be periodically tested for impairment. CFA® exam details: CFA® course is divided into three levels. Weighted Average Cost gives each item in inventory a cost equal to the average value of all inventory. Recognize the revenue upon satisfaction of a performance obligation. Create. Individual company past sales are also used to determine potential results for specific business units. Log in Sign up. Level I of the CFA Program is an excellent introduction to finance. Not all items on the balance sheet are measured in the same manner, so some items may reflect historical costs while others are at current market value. Basic Questions 76%. There are three primary components of the cash flow statement. CFA ® exam sample questions might be just what you need if you are trying to get a sense of what the exam is like. Long-lived assets are resources that are expected to provide benefits to the company over multiple reporting periods. For each level, you can also view the full curriculum readings for Study Session 1, and all study sessions combined. Just reading materials may not be sufficient to pass CFA Level 1, a lot of practices are required to solidify understanding and get familiar with the questions. To be more precise, there are 6 level 1 CFA exam books that include 10 topics, which are divided into 19 study sessions. If costs are included in inventory that should have been expensed right away, it overstates profitability in the reporting period and inflates inventory values on the balance sheet. ©AnalystPrep. As a result, the balance sheet of a company is affected by changes in tax rates, just like the earnings and cash flow statements. Only $2.99/month. ... CFA®, and Chartered Financial Analyst® are trademarks owned by CFA Institute. There are three elements that make up the balance sheet. 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