Reading 29: Financial Statement Analysis: An Introduction-LOS 2011, following, reporting, center, least

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Session 7: Financial Reporting and Analysis: An Introduction
Reading 29: Financial Statement Analysis: An Introduction

LOS a: Discuss the roles of financial reporting and financial statement analysis.

 

 

According to the IASB, which of the following least accurately describes financial reporting? Financial reporting:

A) provides information about changes in financial position of an entity.

B) is useful to a wide range of users.

C) uses the information in a company’s financial statements to make economic decisions.

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The role of financial reporting is described by the International Accounting Standards Board (IASB) in its “Framework for the Preparation and Presentation of Financial Statements”:

The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.

Using the information in a company’s financial statements to make economic decisions is financial analysis, not financial reporting.

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Which of the following is least likely to be considered a role of financial statement analysis?

A) To make economic decisions.

B) Determining whether to invest in the company’s securities.

C) Assessing the management skill of the company’s executives.

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The role of financial statement analysis is to use the information in a company’s financial statements, along with other relevant information, to make economic decisions. Examples of such decisions include whether to invest in the company’s securities or recommend them to other investors, or whether to extend trade or bank credit to the company. Although the financial statements might provide indirect evidence about the management skill of the company’s executives, that is not generally considered the role of financial statement analysis.

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Which of the following best describes financial reporting and financial statement analysis?

A) Financial reporting refers to how companies show their financial performance and financial analysis refers to using the information to make economic decisions.

B) Financial reports assess a company’s past performance in order to draw conclusions about the company’s ability to generate cash and profits in the future.

C) The objective of financial analysis is to provide information about the financial position of an entity that is useful to a wide range of users.

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Financial reporting refers to the way companies show their financial performance to investors, creditors, and other interested parties by preparing and presenting financial statements. The objective of financial statements, not analysis, is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. The role of financial statement analysis, not reporting, is to use the information in a company’s financial statements, along with other relevant information, to assess a company’s past performance in order to draw conclusions about the company’s ability to generate cash and profits in the future.

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Which of the following statements about financial statement analysis and reporting is least accurate?

A) Financial statement analysis focuses on the way companies show their financial performance to investors by preparing and presenting financial statements.

B) Deciding whether to recommend a company’s securities to investors is a role of financial statement analysis.

C) Providing information about changes in a company’s financial position is a role of financial reporting.

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Financial reporting refers to the way companies show their financial performance to investors, creditors, and other interested parties by preparing and presenting financial statements, including information about changes in a company’s financial position. The role of financial statement analysis is to use the information in a company’s financial statements, along with other relevant information, to make economic decisions, such as whether to invest in the company’s securities or recommend them to other investors. Analysts use financial statement data to evaluate a company’s past performance and current financial position in order to form opinions about the company’s ability to earn profits and generate cash flow in the future.

luqian55

thanks a lot