Financial Analysis. Lesson 36. Financial Reporting Standards and Compliance

Financial Analysis. Lesson 36. Financial Reporting Standards and Compliance

1. Financial reporting standards ensure consistency and transparency in financial statements.

2. Generally Accepted Accounting Principles (GAAP) guide financial reporting in the U.S.

3. International Financial Reporting Standards (IFRS) are global standards for financial reporting.

4. Balance sheet displays assets, liabilities, and shareholders’ equity at a point in time.

5. Income statement shows revenues, expenses, and profit over a specific period.

6. Cash flow statement tracks cash inflows and outflows from business activities.

7. Statement of changes in equity shows changes in equity from transactions.

8. Fair value accounting measures assets based on current market prices.

9. Historical cost records asset values at the original purchase price.

10. Revenue recognition principle states revenue is recorded when earned, not received.

11. Matching principle matches expenses to revenues in the period they occur.

12. Materiality allows small amounts to be disregarded if not misleading.

13. Conservatism principle favors understatement of assets and income for caution.

14. Full disclosure principle requires all relevant information be disclosed in reports.

15. Impairment reduces asset value when recoverable amount is less than cost.

16. Depreciation allocates asset cost over its useful life in statements.

17. Amortization spreads intangible asset costs over their useful lives.

18. Goodwill is the excess paid over fair market value in acquisitions.

19. Contingent liability is a potential obligation depending on future events.

20. Deferred tax reflects taxes payable or receivable in future periods.

21. Accrual accounting records income and expenses when they occur, not paid.

22. Variance analysis compares budgeted amounts to actual financial performance.

23. Audit provides an independent review of financial statements for accuracy.

24. Internal controls prevent fraud and ensure accuracy in financial reporting.

25. Going concern assumes a business will continue to operate in future.

26. Leases under IFRS 16 are capitalized as assets on balance sheets.

27. Segment reporting discloses financial information by business segments.

28. IFRS 9 governs financial instruments' classification and measurement.

29. IFRS 15 regulates revenue recognition from contracts with customers.

30. IFRS 16 redefines accounting for leases in financial statements.

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Technical Examples:

1. Fair value accounting adjusts asset prices to reflect current market conditions.

2. Variance analysis helps identify discrepancies between budgets and actual performance.

3. Accrual accounting ensures revenues and expenses are recorded when incurred.