CFA Revision

1. Revise entire CFA syllabus 6 days
FSA
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2. Tips - Segregated by Study Session
Study Session 7
•
Four types of audit reports. Auditors only check whether FS are prepared according to
GAAP. Preparation of FS is responsibility of management. They are prepared for
shareholders but used by a wide variety of users
•
Six steps in financial statement analysis framework: 1) objective 2) collect data 3) process
data 4)analyze data 5) conclusion / recommendation 6) periodic monitoring. Need to
remember what happens ine ach stage
•
Basic and the extended accounting equation – prepare to answer questions around it, i.e.
recording various business transactions or solving numerical. Learn to identify the correct
form of extended equation even if the constituents are moved around
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3. Tips - Segregated by Study Session
•
Relationship between income statement, balance sheet, cash flow statement & statement
of owner’s equity. Relationships used throughout FRA
•
IASB – conceptual framework, qualitative characteristics and objectives – questions
sometimes are confusing so be thorough with each one of them
•
Key concepts of financial reporting standards under US GAAP & IFRS. Note the minor
difference in the definition of assets under IFRS & US GAAP
Study Session 8
•
Revenue recognition methods – be prepared to identify the correct revenue recognition
method, i.e. % of completion, completed contract, instalment sales and cost recovery
method based on the situation provided. Be thorough with the calculations of revenue,
cost of sales and gross profit for each one of them
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4. Tips - Segregated by Study Session
•
Treatment of non-recurring items – discontinued operations (measurement date,
phaseout period), unusual or infrequent and extraordinary
•
EPS calculations – Always check for the impact of dilution before adding a potentially
dilutive security to the basic EPS calculation. Don’t forget to multiply interest rate with (1 –
tax rate) in the numerator for convertible debt. For stock options, check the exercise price
only with average market price for dilution and ignore market price given at a particular
date.
•
4 items included in other comprehensive income
• Foreign currency translation gains & losses
• Adjustments for minimum pension liability
• Unrealized gains & losses from cash flow hedging
• Unrealized gains & losses from available for sale securities
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5. Tips - Segregated by Study Session
•
Measurement basis of assets and liabilities and differences in US GAAP & IFRS - Especially
inventory, PP&E, Investment property and intangibles
•
Memorize the difference of treatment in income statement and balance sheet of Held-tomaturity, Held for sale and Trading securities
•
IFRS & US GAAP difference in treatment of dividends received / paid, interest received /
paid, taxes paid
•
Identify individual constituents of FCFF, FCFE and relationship between the two formulas.
•
Calculation of Gross PP&E and accumulated depreciation of disposed asset. Bit of detective
work required to calculate cash dividends paid
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6. Tips - Segregated by Study Session
•
Be able to classify ratios under activity, solvency, profitability and valuation ratios. Be
careful about the constituents of individual ratios, especially solvency ratios like Debt /
Equity, Debt / Assets, financial leverage, interest coverage and fixed charge coverage
•
Always remember to use average of balance sheet values when using mixed ratios
•
Dupont Analysis – whenever asked to calculate ROE and info provided is in the form of
NPM, ROA, equity multiplier / Financial Leverage, Interest Burden, Tax burden. Always
expand such ratios and then analyze what combination gets you to ROE. Many times you
don’t require all the info to arrive at ROE
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7. Tips - Segregated by Study Session
Study Session 9
• Inventory – Identify costs to be included in inventories on the balance sheet and costs to be
expensed
• Be able to calculate Cost of sales, EI & GP using FIFO, LIFO, AVCO under periodic and
perpetual method
• Measurement of inventory at lower of cost or NRV
• Financial reporting of Purchased, internally developed and intangibles acquired in business
combination
• Intangibles with finite lives are amortized. Methods are similar to depreciation – SL, DDB,
UoP. Infinite lives intangibles are not amortized, but tested for impairment
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8. Tips - Segregated by Study Session
• Impact of various depreciation methods used on financial statements and what happens
when assumptions like useful life and salvage value are changed
• Income Taxes – Main points: 1) Tax base of asset 2) Tax base of liability 3) How deferred tax
asset and liability is created 4) Tax Expense = Tax Payable + ΔDTL – ΔDTA. US GAAP & IFRS
differences in Tax Accounting
• Bonds: - De-recognition of bonds, treatment of bond issue cost under IFRS & US GAAP.
Always use market rate of interest at the time of bond issue to calculate interest expense
• Leases – Impact on ratios when using operating vs financing for lessor and lessee. Two types
of finance leases for a lessor: 1)Sales type lease (When lessor is manufacturer or dealer of
asset) 2) Direct financing lease (Lessor is a leasing company). Gross profit recorded under
sales type lease
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9. Tips - Segregated by Study Session
Study Session 10
• Three conditions present when fraud occurs, i.e. fraud triangle. Be able to identify risk
factors under each condition
• Be able to identify activities that result in low quality earnings like Aggressive revenue
recognition methods, LIFO liquidations (declining LIFO reserve), aggressive pension
assumptions to name a few
• Appropriate analyst adjustments to a company’s financial statements to facilitate comparison
with another company
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10. Tips - General
• Scan the exam for easy questions, then move to mid-level difficulty questions and then
tough ones at the end. Practice this method during mock exams and use it in the exam only
if comfortable
• Practice atleast 5 mock exams from schweser books and CFA website under actual exam
conditions
• After each exam, grade yourself and analyze your weak areas. Improvise on your weak
points before giving the next exam
• Whenever you see a question that asks for such answer choices like: “least accurate” or
“not true”, highlight it with a pencil in the question paper and then proceed to the answer
choices
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11. Tips - General
• Visit the exam center couple of weeks before the exam in order to avoid any nervous
moments on the day of the exam in case you are not able to locate the center
• Check all the requirements regarding pencil, calculators, id and be ready with your supplies
two days in advance
• In case you are booking a cab, make sure it is a reliable company, some candidates have
experienced last minute cab cancelations
• Keep your energy levels up on the day of the exam as it gets difficult to concentrate during
the second session. Do whatever works best for you, i.e. black coffee, red bull, etc.
• Have a light meal during the break between two exams, heavy foods tend to make you
sleepy. Avoid rice
• Be prepared for either too cold / or warm exam room conditions. Flexible dressing
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12. Thank You !
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