CFA (Chartered Financial Analyst) Financial Statement Analysis Syllabus

Financial Statement Analysis syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Financial Statement Analysis in CFA (Chartered Financial Analyst), not a summary of it.

1. 1

   Financial Reporting Framework

   4 topics

   • Introduction to financial statement analysis
   • Financial reporting standards
     • IFRS vs US GAAP conceptual frameworks
     • Role of standard-setting bodies and Ind AS context
   • Analyzing the income statement
   • Analyzing the balance sheet and cash flow statement
2. 2

   Analysis of Key Financial Statement Items

   4 topics

   • Inventories (FIFO, weighted average, LIFO effects)
   • Long-lived assets, depreciation, and impairment
   • Income taxes
     • Deferred tax assets and liabilities
     • Effective vs statutory tax rates
   • Non-current liabilities (bonds and leases)
3. 3

   Financial Analysis Techniques

   4 topics

   • Ratio analysis
     • Activity, liquidity, and solvency ratios
     • Profitability ratios and DuPont decomposition
   • Common-size analysis and segment reporting
   • Financial reporting quality and earnings manipulation
   • Applications: forecasting and credit/equity analysis
4. 4

   Advanced Reporting Topics

   4 topics

   • Intercorporate investments and consolidation
   • Employee compensation: post-employment and share-based
   • Multinational operations and currency translation
   • Analysis of financial institutions

Financial Statement Analysis flashcards for CFA (Chartered Financial Analyst)

25 of 57 cards from the Financial Statement Analysis deck — real questions with worked answers.

1. What is the primary objective of financial statement analysis?

   To use financial reports and other information to evaluate a company's past and current performance and financial position in order to form expectations about its future performance and make economic decisions (e.g., credit or equity investment).

2. Name the four principal financial statements a company prepares.

   The income statement (statement of comprehensive income), the balance sheet (statement of financial position), the cash flow statement, and the statement of changes in equity.

3. What is the role of the auditor's report in financial statement analysis?

   It provides an independent opinion on whether the financial statements are fairly presented in accordance with the applicable accounting standards. An unqualified (clean) opinion indicates fair presentation; qualified, adverse, or disclaimer opinions signal problems.

4. Distinguish the IASB and the FASB as standard-setting bodies.

   The IASB (International Accounting Standards Board) develops and issues IFRS used in most of the world; the FASB (Financial Accounting Standards Board) develops US GAAP used in the United States. Both are private-sector standard setters overseen by trustees.

5. What is the difference between a standard-setting body and a regulatory authority?

   Standard-setting bodies (IASB, FASB) create the accounting standards; regulatory authorities (e.g., SEC in the US, SEBI in India) have legal authority to enforce financial reporting requirements and recognize/adopt those standards in their jurisdictions.

6. What is Ind AS and how does it relate to IFRS?

   Ind AS (Indian Accounting Standards) are India's accounting standards that are converged with IFRS but carved out with certain modifications. They are notified by the Ministry of Corporate Affairs and apply to specified classes of Indian companies.

7. List the qualitative characteristics of useful financial information under the IFRS Conceptual Framework.

   Two fundamental characteristics: relevance and faithful representation. Four enhancing characteristics: comparability, verifiability, timeliness, and understandability.

8. State the basic accounting equation.

   $$\text{Assets} = \text{Liabilities} + \text{Owners' Equity}$$

9. What are the elements of financial statements under the IFRS Conceptual Framework?

   Assets, liabilities, and equity (related to financial position); income and expenses (related to performance).

10. Name one major conceptual difference in inventory accounting between IFRS and US GAAP.

    US GAAP permits LIFO (last-in, first-out) for inventory; IFRS prohibits LIFO. (US GAAP also values inventory at lower of cost or market/NRV with no reversal of write-downs, whereas IFRS uses lower of cost or NRV and permits reversal of prior write-downs.)

11. How does the treatment of development costs differ between IFRS and US GAAP?

    Under IFRS, research costs are expensed but development costs may be capitalized once technical and economic feasibility criteria are met. Under US GAAP, both research and development costs are generally expensed as incurred (with limited exceptions).

12. State the multi-step income statement progression from revenue to net income.

    Revenue − Cost of goods sold = Gross profit; Gross profit − Operating expenses = Operating income (EBIT); Operating income − Interest/non-operating items = Pre-tax income; Pre-tax income − Tax expense = Net income.

13. Under the revenue recognition standard (IFRS 15 / ASC 606), what are the five steps?

    (1) Identify the contract with a customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; (5) recognize revenue as each obligation is satisfied.

14. Define basic earnings per share (EPS).

    $$\text{Basic EPS} = \frac{\text{Net income} - \text{Preferred dividends}}{\text{Weighted average number of common shares outstanding}}$$

15. What distinguishes diluted EPS from basic EPS?

    Diluted EPS incorporates the effect of all dilutive potential common shares (convertible securities, options, warrants), assuming they are converted/exercised. It is always less than or equal to basic EPS.

16. Define comprehensive income.

    Comprehensive income is the change in equity during a period from transactions and other events, excluding owner transactions. It equals net income plus other comprehensive income (OCI). $$\text{Comprehensive income} = \text{Net income} + \text{OCI}$$

17. Give two examples of items reported in Other Comprehensive Income (OCI).

    Examples: unrealized gains/losses on available-for-sale (FVOCI) debt securities, foreign currency translation adjustments, certain pension plan remeasurements, and gains/losses on cash flow hedges.

18. What are the three sections of the cash flow statement?

    Cash flows from operating activities (CFO), cash flows from investing activities (CFI), and cash flows from financing activities (CFF).

19. Contrast the direct and indirect methods of presenting cash flow from operations.

    The direct method reports actual operating cash receipts and payments by category. The indirect method starts with net income and adjusts for non-cash items and changes in working capital. Both yield the same CFO total.

20. How is the indirect-method CFO computed from net income?

    Start with net income; add back non-cash expenses (e.g., depreciation, amortization); remove non-operating gains/losses; then adjust for changes in working capital (subtract increases in operating assets, add increases in operating liabilities).

21. Under the FIFO inventory method, which costs flow to COGS and which to ending inventory?

    Under FIFO (first-in, first-out), the oldest costs flow to COGS and the most recent (newest) costs remain in ending inventory.

22. In a period of rising prices, how does LIFO affect COGS, net income, and ending inventory versus FIFO?

    LIFO yields higher COGS, lower net income, lower taxes, and lower (understated) ending inventory than FIFO. FIFO yields lower COGS, higher net income, and ending inventory closer to current cost.

23. State the inventory cost-flow identity linking purchases and COGS.

    $$\text{COGS} = \text{Beginning inventory} + \text{Purchases} - \text{Ending inventory}$$

24. What is a LIFO reserve and how is it used to convert LIFO inventory to FIFO?

    The LIFO reserve is the difference between FIFO and LIFO inventory values. $$\text{Inventory}_{\text{FIFO}} = \text{Inventory}_{\text{LIFO}} + \text{LIFO reserve}$$ Also, $\text{COGS}_{\text{FIFO}} = \text{COGS}_{\text{LIFO}} - \Delta(\text{LIFO reserve})$.

25. How is inventory measured under IFRS versus US GAAP?

    IFRS: lower of cost or net realizable value (NRV), with reversals of write-downs allowed up to original cost. US GAAP (FIFO/weighted average): lower of cost or NRV; (LIFO/retail) lower of cost or market — write-down reversals are prohibited.

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