Certified Internal Auditor (CIA) Financial Management and Economics (Part 3) Syllabus

Financial Management and Economics (Part 3) syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Financial Management and Economics (Part 3) in Certified Internal Auditor (CIA), not a summary of it.

1. 1

   Financial Accounting and Reporting

   3 topics

   • Financial Accounting Concepts
     • Accrual basis and core financial statements
     • Revenue recognition and intangibles
   • Financial Statement Analysis
     • Liquidity, solvency, profitability ratios
     • Horizontal and vertical analysis
   • Advanced and Special Topics
     • Consolidation and business combinations
     • Foreign currency and derivatives basics
2. 2

   Managerial Accounting and Corporate Finance

   3 topics

   • Managerial Accounting
     • Cost concepts: fixed, variable, relevant
     • Costing systems and break-even analysis
   • Capital Budgeting
     • NPV, IRR, and payback
     • Cost of capital
   • Capital Structure and Working Capital
     • Debt vs. equity financing
     • Cash, receivables, and inventory management
3. 3

   Economics and the Global Business Environment

   3 topics

   • Macroeconomic Concepts
     • Business cycles, inflation, unemployment
     • Monetary and fiscal policy
   • Microeconomic Concepts
     • Supply and demand
     • Market structures and pricing
   • Global Business and Currency
     • Exchange rates and FX risk
     • International trade and regulation

Financial Management and Economics (Part 3) flashcards for Certified Internal Auditor (CIA)

23 of 61 cards from the Financial Management and Economics (Part 3) deck — real questions with worked answers.

1. What are the four basic financial statements required under U.S. GAAP?

   The balance sheet (statement of financial position), the income statement, the statement of cash flows, and the statement of changes in stockholders' equity.

2. State the fundamental accounting equation.

   Assets = Liabilities + Owners' (Stockholders') Equity.

3. Under accrual-basis accounting, when are revenues recognized?

   When they are earned (performance obligation satisfied), regardless of when cash is received — matching the related expenses to the same period.

4. What is the difference between the cash basis and accrual basis of accounting?

   Cash basis records revenues and expenses only when cash is received or paid; accrual basis records them when earned or incurred, regardless of cash flow.

5. What are the three sections of the statement of cash flows?

   Operating activities, investing activities, and financing activities.

6. Under U.S. GAAP, where is interest paid classified on the statement of cash flows?

   As an operating activity (under IFRS it may be classified as operating or financing).

7. What is the difference between the direct and indirect methods of preparing the operating section of the cash flow statement?

   The direct method lists actual cash receipts and payments; the indirect method starts with net income and adjusts for non-cash items and working-capital changes.

8. Define a deferred (unearned) revenue.

   A liability representing cash received before goods or services have been delivered; it becomes revenue once the obligation is satisfied.

9. What is the current ratio and what does it measure?

   Current ratio = Current Assets / Current Liabilities; it measures short-term liquidity — ability to cover current obligations with current assets.

10. What is the quick (acid-test) ratio formula?

    Quick ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities, measuring liquidity using only the most liquid assets.

11. How is the debt-to-equity ratio calculated and what does it indicate?

    Debt-to-Equity = Total Liabilities / Total Equity; it indicates financial leverage and the relative reliance on debt versus equity financing.

12. What is the formula for return on equity (ROE)?

    ROE = Net Income / Average Shareholders' Equity; it measures profitability relative to owners' investment.

13. What is the DuPont identity (three-factor) for ROE?

    ROE = Net Profit Margin x Asset Turnover x Equity Multiplier = (Net Income/Sales) x (Sales/Assets) x (Assets/Equity).

14. What does inventory turnover measure and how is it calculated?

    It measures how many times inventory is sold and replaced in a period: Inventory Turnover = Cost of Goods Sold / Average Inventory.

15. How is days sales outstanding (average collection period) computed?

    DSO = (Average Accounts Receivable / Net Credit Sales) x 365; it shows the average number of days to collect receivables.

16. What is the times-interest-earned (interest coverage) ratio?

    Times Interest Earned = EBIT / Interest Expense; it measures the ability to meet interest obligations from operating earnings.

17. What is the gross profit margin formula?

    Gross Profit Margin = (Sales - Cost of Goods Sold) / Sales; it shows the percentage of revenue remaining after direct production costs.

18. Distinguish horizontal analysis from vertical analysis of financial statements.

    Horizontal analysis compares line items across periods (trend over time); vertical analysis expresses each line item as a percentage of a base figure within one period (e.g., % of sales).

19. Under the equity method, how does an investor account for an investee's net income?

    The investor increases the investment account and recognizes investment income for its proportionate share of the investee's net income; dividends received reduce the investment account.

20. When is the equity method generally used for an investment?

    When the investor has significant influence, generally indicated by ownership of 20% to 50% of voting stock.

21. What is a finance (capital) lease versus an operating lease for the lessee under current U.S. GAAP (ASC 842)?

    Both put a right-of-use asset and lease liability on the balance sheet; a finance lease recognizes interest and amortization separately, while an operating lease recognizes a single straight-line lease expense.

22. What is a deferred tax liability?

    A future tax obligation arising from temporary differences where taxable income will exceed book income in later periods (e.g., accelerated tax depreciation).

23. How do managerial accounting and financial accounting differ in primary audience?

    Managerial accounting serves internal users (managers) for decision-making; financial accounting serves external users (investors, creditors, regulators).

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