Question

essay question

1. List the phases of the Financial Statement Analysis Framework and discuss why the last stage is needed. (Chapter 1, Section 4, p29)

2. List the five elements of financial statements and present five examples of accounts for any of these elements. (Chapter 2, Section 3, p40-41)

3. Name two standard-setting bodies. Are these bodies government entities? (Chapter 3, Sections 3.1.1 and 3.1.2)

Answer 1

1. There are generally 6 phases are involved in Financial Statement analysis framework.

(i) Articulating the purpose and Context of analysis: This step is regarding the purpose the approach, purpose, tools, data sources and format in which final report is presented.It also defines the target audience, time frame and identify the resource and constraints.The analyst compile the specifics questions.

(ii) Collecting the Input Data: In this step , the analyst gathers the necessary data to answers the compiled questions in step I.

These may regarding the economic activities and industry in which entity operate which allows the understanding of company's business, financial position and performance.

(iii) Processing of Data: In this step, the analyst process the data collected in step 2 through various tools like ration analysis, creating charts, through regression analysis.

(iv) Analyzing and Interpreting the data: In this step, the analyst assess the processed data and interpreting the outcome of data and which are used as recommendation.

(v)Developing and Communicating the conclusions and recommendation: The analyst develop and communicate the data in appropriate format.

(vi) Doing Follow up: The analyst persistently perform reviews to verify whether initial recommendations are holding true.

The Last step is very important because it requires the continuous verification of initial drawn conclusions and recommendations is required otherwise they are not holding true re doing of all steps are required to be done.

2.There are Five elements are presents in Financial Statements.

In Balance Sheet, there are 3 elements are Assets, Liabilities and Equity are present

In Profit and Loss, there are 2 elements are present are Revenue and Expenses are present.

Examples of above Elements are as follows:

Assets: Plant & Machinery, Debtors, Inventories, Cash in hand, Deposits given

Liabilities: Creditors, Bank Loans, deposits taken, employees dues, Statutory dues.

Equity: Share capital, Retained earnings, Revaluation gain.

Revenue: sales of goods, rendering services, other income

Expenses: Repairs, Cost of goods sold, Finance cost, Depreciation and other Expenses.

3. There are to two following accounting standard bodies are as :

a. International accounting Standard Board (IASB)

b. Financial Standard accounting Board: (FASB)

These above bodies are private sector organization consisting of accountants, auditors and academicians who are responsible for setting the standards but they do not have power of enforcement of standards.