- CFA Exams
- 2023 Level II
- Topic 3. Financial Statement Analysis
- Learning Module 15. Evaluating Quality of Financial Reports
- Subject 2. Evaluating the Quality of Financial Reports
Subject 2. Evaluating the Quality of Financial Reports PDF Download
Typical steps involved in evaluating financial reporting quality include:
1. An understanding of the company's business and industry in which the company is operating.
2. Review of management compensation and insider transactions.
3. Identify significant accounting areas.
4. Make comparisons.
- Current period vs. previous year
- Company vs. competitors: accounting policies, ratio analysis
5. Check for accounting warning signs.
6. Segment analysis.
7. Quantitative tools.
- Beneish Model: It uses financial ratios and eight variables to identify whether a company has manipulated its earnings.
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