Thursday, January 5, 2012

Financial Reporting Analysis: Accounting for CFA Level 2



The area starts with 40 famous ratios. You need to by heart these rules.
Inventory and Long lived assets (first chap), I will also refer to old book

Three major divisions that will be new:
  1. Inventory & long lived assets 
  2. Intercorporate
  3. Employee
  4. Multi national
  5. Earning quality & Fin Ratios

These three needs to be taken care of aggressively.

Week 1 at CFA L2
Inter-corporate investment was taken for 4 days to talk about 3 types of investment that could be done.
Trading, held for maturity, Available for sale. 
It started with held for trading, etc to methods of consolidation based on Good will.
Investment, influence, and control are the three methods. Equity method vs consolidation, where there are 2 types partial goodwill, full goodwill method, where goodwill should be taken completely to take right value of the minority interest. MI is a very imp part of consolidation but it not there in partial or equity consolidation.

Week 2 for CFA L2
Started with foreign investment accounting, Multi national operations. Temporal and current are 2 methods that account for a subsidiary in another country.
Temporal and current methods are 2 methods, where balance sheet are current vs income is taking all the load for old balance sheet.
Hyper inflation and the effect during hyper inflation.  Also the chapter ends with the effect of ratios.

Ratio analysis will be important to see after each of these translations.

All these things will have an impact on ratios which can be the questions in the exam.

The quality and analysis part in study session in 7 will be the most important and interesting.

Areas you should revisit:
Pooling on interest and balance sheet after these activities

Week 3 CFA Level 2
Pension and funds, implication of Financial ratios 

My strategy:
  1. Listen Schw Videos
  2. Listen allan (if good enough)
  3. Read Core Readings
  4. Discuss with roommates
  5. Try for Coaching

Ratios test:
  1. Use of reserves and surplus
  2. Solvency ratios when dilemma
  3. Proprietary ratio: a term used in India but means the same
  4. Bank over draft
  5. Days turnover research
  6. Ratios given with linear equation

CFA Level 1 Overlap with CFA Level 2 2012
LIFO FIFO and ratio effect
Long lived assets part

Pension funds and PBO (CFA Level 2):
I studied pension fund in a 3 hour class, where it first started with how to discount all future pension so that they can be expensed at the current Income Statement. Then the expense of some other activity like rate change / management or actuarial / discount factor needs to be adjusted in OCI. Current service cost and interest expenses are expensed in the income statement. Now the money invested needs to be realized at fixed return and more/less return again needs to be put in the OCI. In this we had questions where the data was given of expense, actuarial change, excess return, change in pension obligation etc and we have to find the right answer. This was an interesting area to study as I came to know about the pension things and issues that a company has when it employs someone in USA.

Test on Financial Reporting analysis
Question on current method
NI averaging?
Common streak: A=L+C
Balancing sheet play

Benefit payed
Service cost

F-Stat derivation
Correlation into SE
Serial correlation vs heteroskedacity vs auto-correlation

Discussion with Vikas:
Company put some money in CTC is this the same what we are learning, is this the same expense or is it something different?
Service is the cost that is incurred when someone works for a year and that money is needed for the formula.

Test Analysis of FRA:
Question of 3 held till maturity, available for sale, trading and linking it to corporate investment for a big case-let. This questions also checks the 3 methods of inter corporate investment.
Another case of 3 things which goes where and how to move things here and there for maturity, avs, hft is thing that might give trouble.
The thing that can give me a little trouble was foreign investment rest all things are good till now. Doing questions from Scz will be enough.

A tricky area, and is applied in all other subjects

1 comment:

  1. 1) Intercorporate investment forms the heard of IB.

    2) Minority interest is the main thing here. Proforma MI and how it is placed in IS BS.

    3 Three types of securities and effect of the financials in recession is helpful.

    4) Since the operations of the company are most of time abroad aspeects of accounting needs to learned. Currency might play a very important role.

    5) Adjustments for long lived assets for creating a future BS IS is another important asepct one must know.

    This balances the approach on CFA L2 and BAT.

    These form an integral part of the IB learning. A 20 page slide would be good enougn on this.