1 Which of the following is most likely found in the management commentary? A. Forward-looking disclosures B. Basis of preparation for the financial statements C. Reasonable assurance whether the financial statements as a whole are free from material misstatement Answer Feedback: A Correct because the management commentary, or MD&A, is a good starting place for understanding information…
Common-Size Analysis of the Income Statement Common-size analysis of the income statement can be performed by stating each line item on the income statement as a percentage of revenue. Common-size statements facilitate comparison across time periods (time series analysis) and across companies (cross-sectional analysis) because the standardisation of each line item removes the effect of…
IFRS require the presentation of EPS on the face of the income statement for net profit or loss (net income) and profit or loss (income) from continuing operations and similar presentation is required under US GAAP. Simple versus Complex Capital Structure Ordinary shares are those equity shares that are subordinate to all other types of…
Both IFRS and US GAAP specify that the results of discontinued operations should be reported separately from continuing operations. Other items that may be reported separately on a company’s income statement, such as unusual items, items that occur infrequently, effects due to accounting changes, and non-operating income, require the analyst to make some judgments. Unusual…
General Principles The three common expense recognition models are as follows: the matching principle, expensing as incurred, and capitalisation with subsequent depreciation or amortisation. Period costs, expenditures that less directly match revenues, are generally expensed as incurred (i.e., either when the company makes the expenditure in cash or incurs the liability to pay). Costs associated…
General Principle A fundamental principle of accrual accounting is that revenue is recognised (reported on the income statement) when it is earned, so the company’s financial records reflect revenue from the sale when the risk and reward of ownership is transferred; this is often when the company delivers the goods or services. If the delivery…