CFA Level 1- Financial Statement Analysis
questions and answers 2025\2026 A+ Grade
Financial Reporting
- correct answer Refers to the way companies show their financial performance to investors, creditors,
and other interested parties by preparing and presenting financial statements.
Role of financial statement analysis
- correct answer Use the information in a company's financial statements, along with other relevant
information, to make economic decisions.
Balance sheet (statement of financial position/ condition)
- correct answer Reports the firm's financial position at a point in time.
Fundamental accounting equation:
- correct answer Assets= liabilities + owner's equity
Capital structure
- correct answer Proportions of liabilities and equity used to finance a company.
Statement of comprehensive income
- correct answer Reports all changes in equity except for shareholder transactions.
Income statement (statement of operations or p/ statement)
- correct answer Reports on the financial performance of the firm over a period of time.
Statement of changes in equity
- correct answer Reports the amounts and sources of changes in equity investors' investment in the firm
over a period of time.
,Statement of cash flows
- correct answer Reports the company's cash receipts and payments.
Operating cash flows
- correct answer Include the cash effects of transactions that involve the normal business of the firm.
Investing cash flows
- correct answer Those resulting from the acquisition or sale of property, plan, and equipment; of a
subsidiary or segment; of securities; and of investments in other firms.
Financing cash flows
- correct answer Those resulting from issuance or retirement of the firm's debt and equity securities and
include dividends paid to stockholders.
Financial statement notes (footnotes)
- correct answer Include disclosures that provide further details about the information summarized in
the financial statements.
Management's commentary (Management's Discussion and Analysis (MD&A))
- correct answer One of the most useful sections of the annual report where management discussed a
variety of issues.
Standard auditor's opinion contains three parts:
- correct answer 1.) Independent review by the auditor
2.) Reasonable assurance that the financial statements contain no material errors.
3.) Auditor is satisfied that the statements were prepared in accordance with accepted accounting
principles and that the principles chosen and estimates made are reasonable. Must also contain
additional explanation when accounting methods have not been used consistently between periods.
Unqualified opinion (unmodified or clean opinion)
- correct answer Indicates that the auditor believes the statements are free from material omissions and
errors.
,Qualified opinion
- correct answer If the statements are not free of material omissions and errors.
Adverse opinion
- correct answer Statements are not presented fairly or are materially non conforming with accounting
standards.
Disclaimer of opinion
- correct answer Auditor is unable to express an opinion.
Modified opinion
- correct answer Any opinion that is not unqualified.
Internal controls
- correct answer Processes by which the company ensures that it presents accurate financial statements
where management is held accountable.
Proxy statements
- correct answer Are issued to shareholders when there are matters that require a shareholder vote.
Earnings guidance
- correct answer Firms often provide this before financial statements are released to give out to
shareholders.
The six steps of the financial statement analysis framework:
- correct answer 1.) State the objective and context
2.) Gather data
3.) Process data
4.) Analyze and interpret the data
5.) Report the conclusions or recommendations
6.) Update the analysis
, IASB Conceptual Framework for Financial Reporting
- correct answer Provide information about the firm to current and potential investors and creditors that
are useful for making their decisions about investing in or ledning to the firm.
Standard-setting bodies
- correct answer Professional organizations of accountants and auditors that establish financial reporting
standards.
Regulatory authorities
- correct answer Government agencies that have the legal authority to enforce compliance with financial
reporting standards.
Two primary standard setting bodies
- correct answer In the United States, the Financial Accounting Standards Board establishes Generally
Accepted Accounting Principles (GAAP).
Outside the United States, IASB establishes International Financial Reporting Standards (IFRS)
International Organization of Securities Commissions (IOSCO)
- correct answer Most national authorities belong to this.
Sarbanes-Oxley Act Of 2022
- correct answer SEC is in control of enforcing this act. Prohibits the company's external auditor from
providing certain additional paid services to the company, to avoid conflict of interest involved and to
promote auditor independence.
Form S-1
- correct answer Registration statement filed prior to the sale of new securities to the public.
Form 10-K
- correct answer Required annual filing that includes information about the business and its
management, audited financial statements and disclosures, and disclosures about legal matters
involving the firm.
Form 10-Q
- correct answer U.S. firms are required to file this form quarterly, with updated financial statements
questions and answers 2025\2026 A+ Grade
Financial Reporting
- correct answer Refers to the way companies show their financial performance to investors, creditors,
and other interested parties by preparing and presenting financial statements.
Role of financial statement analysis
- correct answer Use the information in a company's financial statements, along with other relevant
information, to make economic decisions.
Balance sheet (statement of financial position/ condition)
- correct answer Reports the firm's financial position at a point in time.
Fundamental accounting equation:
- correct answer Assets= liabilities + owner's equity
Capital structure
- correct answer Proportions of liabilities and equity used to finance a company.
Statement of comprehensive income
- correct answer Reports all changes in equity except for shareholder transactions.
Income statement (statement of operations or p/ statement)
- correct answer Reports on the financial performance of the firm over a period of time.
Statement of changes in equity
- correct answer Reports the amounts and sources of changes in equity investors' investment in the firm
over a period of time.
,Statement of cash flows
- correct answer Reports the company's cash receipts and payments.
Operating cash flows
- correct answer Include the cash effects of transactions that involve the normal business of the firm.
Investing cash flows
- correct answer Those resulting from the acquisition or sale of property, plan, and equipment; of a
subsidiary or segment; of securities; and of investments in other firms.
Financing cash flows
- correct answer Those resulting from issuance or retirement of the firm's debt and equity securities and
include dividends paid to stockholders.
Financial statement notes (footnotes)
- correct answer Include disclosures that provide further details about the information summarized in
the financial statements.
Management's commentary (Management's Discussion and Analysis (MD&A))
- correct answer One of the most useful sections of the annual report where management discussed a
variety of issues.
Standard auditor's opinion contains three parts:
- correct answer 1.) Independent review by the auditor
2.) Reasonable assurance that the financial statements contain no material errors.
3.) Auditor is satisfied that the statements were prepared in accordance with accepted accounting
principles and that the principles chosen and estimates made are reasonable. Must also contain
additional explanation when accounting methods have not been used consistently between periods.
Unqualified opinion (unmodified or clean opinion)
- correct answer Indicates that the auditor believes the statements are free from material omissions and
errors.
,Qualified opinion
- correct answer If the statements are not free of material omissions and errors.
Adverse opinion
- correct answer Statements are not presented fairly or are materially non conforming with accounting
standards.
Disclaimer of opinion
- correct answer Auditor is unable to express an opinion.
Modified opinion
- correct answer Any opinion that is not unqualified.
Internal controls
- correct answer Processes by which the company ensures that it presents accurate financial statements
where management is held accountable.
Proxy statements
- correct answer Are issued to shareholders when there are matters that require a shareholder vote.
Earnings guidance
- correct answer Firms often provide this before financial statements are released to give out to
shareholders.
The six steps of the financial statement analysis framework:
- correct answer 1.) State the objective and context
2.) Gather data
3.) Process data
4.) Analyze and interpret the data
5.) Report the conclusions or recommendations
6.) Update the analysis
, IASB Conceptual Framework for Financial Reporting
- correct answer Provide information about the firm to current and potential investors and creditors that
are useful for making their decisions about investing in or ledning to the firm.
Standard-setting bodies
- correct answer Professional organizations of accountants and auditors that establish financial reporting
standards.
Regulatory authorities
- correct answer Government agencies that have the legal authority to enforce compliance with financial
reporting standards.
Two primary standard setting bodies
- correct answer In the United States, the Financial Accounting Standards Board establishes Generally
Accepted Accounting Principles (GAAP).
Outside the United States, IASB establishes International Financial Reporting Standards (IFRS)
International Organization of Securities Commissions (IOSCO)
- correct answer Most national authorities belong to this.
Sarbanes-Oxley Act Of 2022
- correct answer SEC is in control of enforcing this act. Prohibits the company's external auditor from
providing certain additional paid services to the company, to avoid conflict of interest involved and to
promote auditor independence.
Form S-1
- correct answer Registration statement filed prior to the sale of new securities to the public.
Form 10-K
- correct answer Required annual filing that includes information about the business and its
management, audited financial statements and disclosures, and disclosures about legal matters
involving the firm.
Form 10-Q
- correct answer U.S. firms are required to file this form quarterly, with updated financial statements
