Financial Reporting Standards Curriculum
21 chapters
1. Financial Reporting Standards
[Verse 1]
Two big standards rule the world of finance today
IFRS global, US GAAP in the USA
When you're counting inventory, methods may differ
LIFO's banned by IFRS, but GAAP's a forgiver
Revenue recognition, both use five-step dance
But timing and details give each their own stance
[Chorus]
Financial standards, keep it clear and true
Relevant reliable, that's what we pursue
Faithful representation, comparable too
Verifiable timely, stakeholders need you
IFRS or GAAP, principles stay the same
Financial reporting is the name of the game
[Verse 2]
Research and development, here's where they split
IFRS allows some capitalization benefit
But US GAAP says expense it as you go
Development costs hit the income statement flow
Lease accounting changed, both standards align
Right-of-use assets on the balance sheet line
[Chorus]
Financial standards, keep it clear and true
Relevant reliable, that's what we pursue
Faithful representation, comparable too
Verifiable timely, stakeholders need you
IFRS or GAAP, principles stay the same
Financial reporting is the name of the game
[Bridge]
IASB sets the international way
FASB guides the US every day
IOSCO helps coordinate the scene
Standard-setting keeps the market clean
Assets liabilities equity too
Income comprehensive, statements true
[Verse 3]
Pension accounting shows another divide
IFRS remeasures, no corridor to hide
Components of cost may be recognized different
Both aim for transparency, that's significant
Qualitative characteristics guide every choice
Give financial statement users a clear voice
[Chorus]
Financial standards, keep it clear and true
Relevant reliable, that's what we pursue
Faithful representation, comparable too
Verifiable timely, stakeholders need you
IFRS or GAAP, principles stay the same
Financial reporting is the name of the game
[Outro]
From London to New York, standards pave the way
Making financial reporting clearer every day
Learn the differences, understand the frame
Financial reporting is the CFA game
2. The Conceptual Framework Fundamentals
[Verse 1]
Financial statements tell a story clear
About a company's performance through the year
But how do we know what makes them right?
The conceptual framework shines the light
It sets the rules for what we show
The foundation that helps investors know
[Chorus]
Relevant and faithful, that's the key
Quality characteristics, can't you see?
R-E-L-E-V-A-N-T, makes a difference in your choice
F-A-I-T-H-F-U-L, gives the numbers their true voice
Conceptual framework guides the way
For financial reporting every day
[Verse 2]
The objective is so crystal clear
Provide information users need to hear
Investors, lenders, creditors too
Need data that will help them choose
Economic decisions based on facts
Not fiction dressed up to attract
[Chorus]
Relevant and faithful, that's the key
Quality characteristics, can't you see?
R-E-L-E-V-A-N-T, makes a difference in your choice
F-A-I-T-H-F-U-L, gives the numbers their true voice
Conceptual framework guides the way
For financial reporting every day
[Verse 3]
Relevance means it matters now
Predictive value shows us how
The future might just come to be
Confirmatory value lets us see
If past predictions came out right
Material impact in our sight
[Verse 4]
Faithful representation means it's true
Complete and neutral through and through
No bias hiding in the text
Free from error, nothing vexed
What happened really happened so
The substance is what we must show
[Bridge]
When relevant meets faithful rep
That's when quality takes its step
Both working together hand in hand
Help users truly understand
The financial position strong
This framework keeps us right, not wrong
[Chorus]
Relevant and faithful, that's the key
Quality characteristics, can't you see?
R-E-L-E-V-A-N-T, makes a difference in your choice
F-A-I-T-H-F-U-L, gives the numbers their true voice
Conceptual framework guides the way
For financial reporting every day
[Outro]
Remember these fundamentals well
They are the foundation we can tell
Quality information starts right here
With principles crystal clear
3. IFRS vs US GAAP: Core Differences
[Verse 1]
Two accounting worlds divide the stage tonight
IFRS from London, US GAAP stateside
One speaks in principles, the other rules precise
Standards telling stories in a different light
International born from harmonizing dreams
While GAAP grew up from American schemes
SEC and FASB write the detailed scenes
IASB keeps it broad, knows what it means
[Chorus]
Principles versus rules, that's the fundamental fight
IFRS says use judgment, GAAP says follow right
Global versus local, flexibility versus might
Two accounting languages in the financial night
Remember P and R - Principles and Rules divide
Remember G and L - Global versus Local pride
[Verse 2]
Asset revaluation tells another tale
IFRS lets you mark up when the markets sail
US GAAP says stick to cost, don't let value derail
Historical numbers, that's the chosen trail
Development costs get different treatment too
IFRS can capitalize when criteria's due
US GAAP expenses them right on through
Same business, different books, different view
[Chorus]
Principles versus rules, that's the fundamental fight
IFRS says use judgment, GAAP says follow right
Global versus local, flexibility versus might
Two accounting languages in the financial night
Remember P and R - Principles and Rules divide
Remember G and L - Global versus Local pride
[Bridge]
Inventory's LIFO only works one way
US GAAP allows it, IFRS says no way
Goodwill impairment follows different play
One step versus two step every single day
Lease accounting's changing, convergence in sight
Both standards growing closer, making wrongs feel right
[Verse 3]
Extraordinary items show the divide so clear
US GAAP prohibited them year after year
IFRS never had them, kept the picture sheer
Different presentations, different things we hear
Framework philosophies guide each standard's heart
Substance over form, that's where both standards start
But implementation shows them worlds apart
One detailed roadmap, one flexible art
[Chorus]
Principles versus rules, that's the fundamental fight
IFRS says use judgment, GAAP says follow right
Global versus local, flexibility versus might
Two accounting languages in the financial night
Remember P and R - Principles and Rules divide
Remember G and L - Global versus Local pride
[Outro]
As the world keeps shrinking, standards may align
But for now two systems help the numbers shine
Choose your accounting language, either one's just fine
Just know which rules you're following down the line
4. Revenue Recognition Standards
[Verse 1]
When you sell a service or a good today
There's a standard way to show the pay
IFRS fifteen and ASC six oh six
Both use the same accounting tricks
A customer contract starts the game
Performance obligations we must name
Transaction price we need to know
Five simple steps and off we go
[Chorus]
Five steps to revenue recognition
Contract, performance, price, allocation, satisfaction
Identify, determine, allocate
Then recognize when obligations you complete
Five steps to revenue recognition
Making sure your numbers show the true position
[Verse 2]
Step one find the contract with your client
Written terms that both sides can't deny it
Step two list what you promised to deliver
Each distinct good or service makes you shiver
Step three calculate transaction price
Variable payments need thinking twice
Step four spread that price across each part
Based on standalone selling price from start
[Chorus]
Five steps to revenue recognition
Contract, performance, price, allocation, satisfaction
Identify, determine, allocate
Then recognize when obligations you complete
Five steps to revenue recognition
Making sure your numbers show the true position
[Bridge]
Step five is when the magic happens now
Control transfers and you take your bow
Over time or at a point in time
That's when revenue becomes your shine
US GAAP and IFRS mostly align
But implementation details can cross the line
Disclosure rules may differ here and there
But the five-step model shows they care
[Verse 3]
Performance satisfied means control passed
Customer benefits from what you've massed
Consumption, payment, legal title too
Physical possession and right to use
Revenue recognition used to vary wide
Now these standards keep us side by side
Financial statements show a clearer view
When the five-step model guides you through
[Chorus]
Five steps to revenue recognition
Contract, performance, price, allocation, satisfaction
Identify, determine, allocate
Then recognize when obligations you complete
Five steps to revenue recognition
Making sure your numbers show the true position
[Outro]
From contracts to the final recognition
Follow steps with careful precision
Revenue standards keep us all in line
Five steps make your financial statements shine
5. Elements of Financial Statements
[Verse 1]
Let me tell you bout a company's story
Written in numbers, failures and glory
Five key pieces paint the whole scene
Assets and liabilities, what do they mean?
Assets are resources that bring value in
Cash, equipment, buildings within
Future benefits flowing to you
Recognition when it's probable and true
[Chorus]
A-L-E-I-E, remember these five
Assets, Liabilities, Equity keeping us alive
Income and Expenses complete the tale
Financial statements never fail
A-L-E-I-E, the building blocks we need
Understanding money's flow and corporate deed
[Verse 2]
Liabilities are debts we owe
Present obligations that make cash flow go
To other parties we must pay
Recognition when the amount's not far away
Equity's the owner's claim inside
Assets minus liabilities, that's our guide
Residual interest when all's been paid
The shareholders' wealth that's been made
[Chorus]
A-L-E-I-E, remember these five
Assets, Liabilities, Equity keeping us alive
Income and Expenses complete the tale
Financial statements never fail
A-L-E-I-E, the building blocks we need
Understanding money's flow and corporate deed
[Bridge]
Income flows in, revenues rise
When economic benefits materialize
Expenses flow out, costs we bear
Decreasing benefits everywhere
Recognition needs two simple tests
Probable flow and measurement that's blessed
Reliable figures we can trust
These criteria are a must
[Verse 3]
Balance sheet shows where we stand today
Assets, liabilities in array
Income statement tells the yearly tale
How revenues and expenses scale
These five elements work as one
Building blocks till the work is done
Master these and you will see
Financial statements clearly
[Chorus]
A-L-E-I-E, remember these five
Assets, Liabilities, Equity keeping us alive
Income and Expenses complete the tale
Financial statements never fail
A-L-E-I-E, the building blocks we need
Understanding money's flow and corporate deed
[Outro]
Five elements strong and true
Financial knowledge seeing through
A-L-E-I-E
Your CFA key
6. Inventory Accounting: IFRS vs US GAAP
[Verse 1]
When you're counting up your stock
There's two ways to track your lot
IFRS and US GAAP don't always agree
On how to value inventory
First In First Out that's FIFO's way
Oldest costs are first to pay
When you sell your goods today
Those early prices lead the way
[Chorus]
LIFO's blocked by IFRS rules
Last In First Out's not their tool
US GAAP says you can choose
But standards matter which you use
Weighted average works for both
FIFO too will help you grow
Know your methods, know them well
Inventory's got a story to tell
[Verse 2]
Last In First Out means LIFO's game
Recent costs take all the blame
When inflation's on the rise
LIFO keeps your taxes low and wise
But IFRS said "No way"
LIFO's banned, it cannot stay
They believe it doesn't show
True economic ebb and flow
[Chorus]
LIFO's blocked by IFRS rules
Last In First Out's not their tool
US GAAP says you can choose
But standards matter which you use
Weighted average works for both
FIFO too will help you grow
Know your methods, know them well
Inventory's got a story to tell
[Bridge]
Weighted average smooths it out
Takes the cost without a doubt
Divides the total by the count
Gets the average amount
Lower of cost or market price
US GAAP's sound advice
IFRS says net realizable
Both keep values verifiable
[Verse 3]
Impact on your balance sheet
Makes the numbers incomplete
Different methods show different gains
Comparability's the strain
When you're reading financial news
Remember which method they use
LIFO, FIFO, or average weight
Makes a difference in debate
[Chorus]
LIFO's blocked by IFRS rules
Last In First Out's not their tool
US GAAP says you can choose
But standards matter which you use
Weighted average works for both
FIFO too will help you grow
Know your methods, know them well
Inventory's got a story to tell
[Outro]
So when you're valuing your stock
Remember what's around the block
Standards differ east and west
Choose the method that fits best
7. Lease Accounting Differences
[Verse 1]
Two standards came to rule the lease accounting game
IFRS Sixteen and ASC Eight-Four-Two by name
Both changed the way we show the leases on our books
Let's learn the differences with some helpful hooks
[Chorus]
Right of use asset, lease liability too
Both standards make them visible for me and you
But when it comes to lessees and the way they're shown
IFRS keeps it simple, ASC has two zones
Operating and finance, that's the ASC way
IFRS treats them all the same every single day
[Verse 2]
Under IFRS rules, all leases look alike
One model for accounting, keeps the numbers tight
But ASC Eight-Four-Two splits them into two
Operating leases and finance leases too
[Chorus]
Right of use asset, lease liability too
Both standards make them visible for me and you
But when it comes to lessees and the way they're shown
IFRS keeps it simple, ASC has two zones
Operating and finance, that's the ASC way
IFRS treats them all the same every single day
[Verse 3]
For finance leases, both standards agree quite well
Amortization and interest, they both will tell
But operating under ASC is different indeed
Straight line expense is what you'll need
[Bridge]
Lessor accounting stays mostly the same
Both standards play a similar game
Sales type, direct financing, operating too
The differences are minor between these two
[Chorus]
Right of use asset, lease liability too
Both standards make them visible for me and you
But when it comes to lessees and the way they're shown
IFRS keeps it simple, ASC has two zones
Operating and finance, that's the ASC way
IFRS treats them all the same every single day
[Outro]
Remember the split, ASC has two types
IFRS keeps one model that everyone likes
Lease accounting standards, now you know the way
IFRS and ASC, they're here to stay
8. R&D and Intangible Asset Treatment
[Verse 1]
When companies spend on research today
IFRS says expense it right away
But development costs can be different friends
If criteria met, capitalize and blend
US GAAP keeps it simple and clean
Expense R and D, that's what they mean
Two standards clash on how we account
For innovation's true amount
[Chorus]
IFRS develops, US expends
Remember how each standard tends
Probable benefits, technical feasible too
Six criteria make development through
Intangible assets need recognition tests
Identifiable, controlled, future benefits blessed
IFRS develops, US expends
That's how the accounting story ends
[Verse 2]
Research phase hunting for new knowledge here
No asset recognized, the rules are clear
Development phase builds upon what's found
If six criteria met, capitalize the ground
Technical feasibility must be shown
Intention and ability to use what's grown
Resources available to complete the task
Future benefits probable, that's all we ask
[Chorus]
IFRS develops, US expends
Remember how each standard tends
Probable benefits, technical feasible too
Six criteria make development through
Intangible assets need recognition tests
Identifiable, controlled, future benefits blessed
IFRS develops, US expends
That's how the accounting story ends
[Bridge]
Patents and trademarks, software and brands
Identifiable assets in our hands
Controlled by entity through legal right
Future economic benefits in sight
Cost model or revaluation way
Choose your measurement at the end of day
Amortize finite, test infinite lives
That's how intangible accounting thrives
[Verse 3]
Internally generated goodwill's banned
No recognition across either land
But purchased goodwill gets a different fate
Allocate to units, impairment rate
US GAAP allows revaluation never
Cost model only, now and forever
IFRS gives choice between the two
Revaluation model for some will do
[Chorus]
IFRS develops, US expends
Remember how each standard tends
Probable benefits, technical feasible too
Six criteria make development through
Intangible assets need recognition tests
Identifiable, controlled, future benefits blessed
IFRS develops, US expends
That's how the accounting story ends
[Outro]
Research expensed but development might
Capitalize under IFRS light
US GAAP expenses both the same
Different standards, different game
9. Introduction to Financial Reporting Standards
[Verse 1]
Companies tell their story through numbers on a page
But without common rules, it's chaos on the stage
One firm counts revenue early, another waits too long
How can investors compare when the methods are all wrong
[Chorus]
Standards make it clear, standards make it fair
GAAP and IFRS, rules that we all share
Consistent and comparable, that's the golden key
Financial reporting standards bring transparency
[Verse 2]
Before these rules existed, each company would choose
How to show their profits, assets, wins and lose
Investors couldn't trust what the balance sheets would say
Standards came to rescue us, to light the proper way
[Chorus]
Standards make it clear, standards make it fair
GAAP and IFRS, rules that we all share
Consistent and comparable, that's the golden key
Financial reporting standards bring transparency
[Bridge]
From New York to London, Tokyo to Rome
Same accounting language, no matter where you roam
Revenue recognition, depreciation too
These standards guide the process in everything we do
[Verse 3]
Public companies must follow these reporting regulations
Auditors will check them across all major nations
Creditors and shareholders need information they can trust
These standards aren't optional, following them's a must
[Chorus]
Standards make it clear, standards make it fair
GAAP and IFRS, rules that we all share
Consistent and comparable, that's the golden key
Financial reporting standards bring transparency
[Outro]
So remember why they matter when you read each quarterly report
These standards are the foundation of financial information support
10. Standard-Setting Bodies and Process
[Verse 1]
When companies report their books each year
We need the rules to be crystal clear
Three mighty bodies set the stage
Writing standards page by page
IASB works worldwide you see
While FASB serves the US free
And IOSCO watches securities
[Chorus]
Standard setters, making it right
IASB, FASB, IOSCO's might
Due process keeps it fair and true
Exposure drafts and comment periods too
Standard setters, hear the call
Making financial reporting work for all
[Verse 2]
The IASB sits in London town
With fourteen members of renown
From different countries they all come
To make IFRS standards for everyone
The trustees guide them from above
While staff research with care and love
Public interest is their only judge
[Chorus]
Standard setters, making it right
IASB, FASB, IOSCO's might
Due process keeps it fair and true
Exposure drafts and comment periods too
Standard setters, hear the call
Making financial reporting work for all
[Verse 3]
FASB protects investors' needs
Seven members plant the seeds
Of GAAP standards tried and true
Research first, then they review
Comment letters flood their door
Public hearings give us more
Transparency is what they're fighting for
[Bridge]
First they research and analyze
Then exposure drafts arise
Comments come from far and wide
Final standards are our guide
This process takes some time to grow
But quality is what we know
[Chorus]
Standard setters, making it right
IASB, FASB, IOSCO's might
Due process keeps it fair and true
Exposure drafts and comment periods too
Standard setters, hear the call
Making financial reporting work for all
[Verse 4]
IOSCO brings regulators near
To make securities crystal clear
Principles and standards they create
Help global markets communicate
When standards work across each border
Financial chaos turns to order
[Outro]
Three bodies working hand in hand
Making standards across the land
Due process makes the system strong
Financial reporting right not wrong
11. Expense Recognition and Matching
[Verse 1]
When a company spends its money on the things it needs to grow
There's a rule about the timing that all accountants need to know
You can't just write expenses down the moment that you pay
There's a principle called matching that will guide you on your way
[Chorus]
Match the cost with revenue earned
That's the lesson to be learned
When they go together hand in hand
Record them both, that's how we planned
Matching principle, timing's right
Expenses flow with revenue's light
Match the cost with revenue earned
That's the matching principle learned
[Verse 2]
If you sell a product in December but you bought supplies in June
Don't record that cost in June, wait for the revenue tune
The expense goes with the sale, they dance together as a pair
This matching keeps our books correct and financials clean and fair
[Chorus]
Match the cost with revenue earned
That's the lesson to be learned
When they go together hand in hand
Record them both, that's how we planned
Matching principle, timing's right
Expenses flow with revenue's light
Match the cost with revenue earned
That's the matching principle learned
[Bridge]
Sometimes you'll pay cash today
But hold that expense for another day
Wait until you earn the sale
Then let both stories tell their tale
Accrual basis is the way
Not when cash changes hands today
[Verse 3]
Salaries, rent, and interest too
Follow matching through and through
If they help you earn today
Record the cost without delay
But if they're for future gains
Hold them back until it pays
[Chorus]
Match the cost with revenue earned
That's the lesson to be learned
When they go together hand in hand
Record them both, that's how we planned
Matching principle, timing's right
Expenses flow with revenue's light
Match the cost with revenue earned
That's the matching principle learned
[Outro]
Revenue and expenses dance as one
Matching principle gets the job done
12. Revenue Recognition Basics
[Verse 1]
When a company makes a sale, there's more than meets the eye
Not every dollar that comes in gets counted right away
There are rules we must follow, standards we obey
IFRS fifteen and ASC six-oh-six show us the way
[Chorus]
Five steps to revenue, let's count them one by one
Identify the contract when the deal has just begun
Find performance obligations, what you promise to deliver
Set the transaction price and allocate with care
Recognize when satisfied, the revenue is there
Five steps to get it right, five steps everywhere
[Verse 2]
Step one is the contract, an agreement we can see
Between the company and customer, with rights for you and me
Commercial substance matters, and payment must be probable
Step two finds promises within, each one accountable
[Chorus]
Five steps to revenue, let's count them one by one
Identify the contract when the deal has just begun
Find performance obligations, what you promise to deliver
Set the transaction price and allocate with care
Recognize when satisfied, the revenue is there
Five steps to get it right, five steps everywhere
[Verse 3]
Step three sets the transaction price, the amount we will collect
Variable considerations and discounts we must reflect
Step four takes that total price and spreads it all around
To each performance obligation, proportionally sound
[Bridge]
Over time or point in time
That's when revenue will shine
Control transfers to the buyer
Recognition lifts us higher
[Verse 4]
Step five is recognition, when control has passed along
The customer now benefits, our obligation's done
Whether over time it happens or at one specific date
The revenue gets recorded when performance is complete
[Chorus]
Five steps to revenue, let's count them one by one
Identify the contract when the deal has just begun
Find performance obligations, what you promise to deliver
Set the transaction price and allocate with care
Recognize when satisfied, the revenue is there
Five steps to get it right, five steps everywhere
[Outro]
From contract to completion, these principles are true
Revenue recognition basics, now you know them too
13. Income Statement Analysis
[Verse 1]
When a company makes a sale, when do we record the gain?
IFRS fifteen and ASC six-oh-six explain the same
Five steps to recognize revenue properly
Contract identified, performance obligations clearly
Transaction price determined, allocate it right
Satisfy performance, then record it bright
[Chorus]
Income statement tells the story
Revenue minus expenses shows the glory
Match the costs to revenues earned
Quality earnings must be learned
Basic EPS and diluted too
Comprehensive income's part of view
[Verse 2]
Matching principle guides expense recognition
Costs should match the revenues in precision
Depreciation spreads the asset's cost
Straight line, declining balance, units produced
Capitalize if benefits future years
Expense immediately if value disappears
[Chorus]
Income statement tells the story
Revenue minus expenses shows the glory
Match the costs to revenues earned
Quality earnings must be learned
Basic EPS and diluted too
Comprehensive income's part of view
[Verse 3]
Non-recurring items need special care
Discontinued operations separate and fair
Unusual or infrequent, mark them clear
Don't let them cloud the regular year
Quality earnings show the truth
Cash flows matter, that's the proof
[Bridge]
Red flags wave when earnings managed
Accruals high and cash flow damaged
Conservative or aggressive style
Affects the numbers all the while
Anti-dilutive securities don't count
Diluted EPS is paramount
[Verse 4]
Basic EPS takes net income clean
Divided by shares outstanding mean
Diluted adds potential shares
From options, warrants, bonds that convert pairs
Other comprehensive income flows
To equity where pension adjustments go
[Chorus]
Income statement tells the story
Revenue minus expenses shows the glory
Match the costs to revenues earned
Quality earnings must be learned
Basic EPS and diluted too
Comprehensive income's part of view
[Outro]
From revenue recognition to the bottom line
Quality and clarity help the numbers shine
14. Depreciation Methods Explained
[Verse 1]
When companies buy assets that will last for years
They can't expense it all at once, that much is clear
A machine, a building, or equipment so fine
Must spread its cost out over its useful time
[Chorus]
Depreciation allocation, spreading costs with calculation
Straight line steady, accelerated ready, units match production
Three methods true, each one will do, but impacts are different
Straight line steady, accelerated ready, units match production
[Verse 2]
Straight line method is the simplest way to go
Take the cost minus salvage, divide by years you know
Same amount each period, steady as can be
Twenty thousand minus two, divided by nine equals steady fee
[Chorus]
Depreciation allocation, spreading costs with calculation
Straight line steady, accelerated ready, units match production
Three methods true, each one will do, but impacts are different
Straight line steady, accelerated ready, units match production
[Verse 3]
Accelerated methods frontload all the expense
Double declining balance makes the most sense
Take twice the straight line rate, multiply book value
Higher costs early on, lower costs when through
[Verse 4]
Units of production matches usage to the cost
Divide by total output, no efficiency is lost
High production years mean higher depreciation
Low production years mean cost conservation
[Chorus]
Depreciation allocation, spreading costs with calculation
Straight line steady, accelerated ready, units match production
Three methods true, each one will do, but impacts are different
Straight line steady, accelerated ready, units match production
[Bridge]
Financial statements show the impact clear
Higher depreciation means less income here
But cash flow stays the same no matter what
It's just allocation, timing is the cut
[Chorus]
Depreciation allocation, spreading costs with calculation
Straight line steady, accelerated ready, units match production
Three methods true, each one will do, but impacts are different
Straight line steady, accelerated ready, units match production
[Outro]
Choose the method that matches best
How your asset passes every test
Depreciation tells the story true
Of how assets create value through and through
15. Capitalize vs Expense Decisions
[Verse 1]
When your company spends some money today
Do you write it off or make it stay?
As an asset on your balance sheet
Or expense it out, the choice complete
Future benefits, that's the key
Will this cost help our company?
More than just this fiscal year
Then capitalize, make it clear
[Chorus]
Cap or zap, that's the choice you make
Cap means asset, zap's expense you take
Future value means you capitalize
One year only, then you recognize
Cap or zap, impacts how you show
Earnings high or earnings low
Balance sheet or income statement bound
Cap or zap, the rule profound
[Verse 2]
If you buy a truck to haul your goods
That's an asset, like all trucks should
Spreads the cost over many years
Depreciation then appears
But the gas you put inside the tank
That's expense, don't need to thank
Used up now, no future gain
One time cost, expense remains
[Chorus]
Cap or zap, that's the choice you make
Cap means asset, zap's expense you take
Future value means you capitalize
One year only, then you recognize
Cap or zap, impacts how you show
Earnings high or earnings low
Balance sheet or income statement bound
Cap or zap, the rule profound
[Bridge]
Management might want to hide
Expenses they can't justify
Capitalize when they should expense
Makes the profits look immense
But auditors will check the books
Find the errors, dirty looks
Follow rules, don't play the game
Honest reporting, that's the aim
[Verse 3]
Research costs for brand new tech
Usually expense, what the heck
But development that's nearly done
Capitalize that, you've won
Training costs for your whole crew
Expense those, that's what you do
Building bought to house your team
Capitalize that, live the dream
[Chorus]
Cap or zap, that's the choice you make
Cap means asset, zap's expense you take
Future value means you capitalize
One year only, then you recognize
Cap or zap, impacts how you show
Earnings high or earnings low
Balance sheet or income statement bound
Cap or zap, the rule profound
[Outro]
When in doubt, ask yourself this way
Will it help beyond today?
If the answer's truly yes
Capitalize, don't second guess
If it's used up right away
Expense it out, don't delay
Cap or zap, now you know the way
16. Non-Recurring Items
[Verse 1]
When companies report their quarterly gains
Sometimes there's items that won't come again
A factory closure, a lawsuit that's done
These special events need to be shown as one
[Chorus]
Non-recurring items, they're one-time affairs
Discontinued operations, unusual cares
Separate the normal from what won't repeat
So analysts know what makes earnings complete
Look below the line, that's where they hide
Non-recurring items, set them aside
[Verse 2]
Discontinued operations, when divisions are sold
The income and losses from units grown old
They're shown separately, after the rest
So you can see how the core business has blessed
[Chorus]
Non-recurring items, they're one-time affairs
Discontinued operations, unusual cares
Separate the normal from what won't repeat
So analysts know what makes earnings complete
Look below the line, that's where they hide
Non-recurring items, set them aside
[Bridge]
Restructuring costs and asset write-downs
Natural disasters that shake the whole town
Gains from asset sales that won't happen twice
These distort the trends, so here's my advice
[Verse 3]
For analysis purposes, strip them away
To see how the business performs day by day
The continuing ops show the real earning power
Non-recurring masks it in that single hour
[Final Chorus]
Non-recurring items, they're one-time affairs
Discontinued operations, unusual cares
Separate the normal from what won't repeat
So analysts know what makes earnings complete
Look below the line, that's where they hide
Non-recurring items, now you know why
[Outro]
Clean up those numbers, see what's really true
Non-recurring items, that's what they do
17. Diluted EPS and Complex Securities
[Verse 1]
When a company has more than just basic shares
Convertible bonds and options everywhere
We need to calculate what earnings could be
If all securities convert potentially
[Chorus]
Diluted EPS, show the worst case scene
If-converted method, treasury stock machine
Anti-dilutive means it makes things better
Leave it out, don't make EPS lesser
[Verse 2]
Start with basic EPS as your foundation
Add back interest saved from bond conversion
Increase the shares outstanding in your math
Check if dilution's on the right path
[Chorus]
Diluted EPS, show the worst case scene
If-converted method, treasury stock machine
Anti-dilutive means it makes things better
Leave it out, don't make EPS lesser
[Verse 3]
Stock options use treasury stock approach
Calculate shares that new cash can't reproach
Take proceeds, buy back shares at average price
Net new shares make earnings slice
[Bridge]
Complex capital structures need more care
Sequence your calculations, compare and prepare
Most dilutive securities first in line
Test each one to see if they're benign
[Chorus]
Diluted EPS, show the worst case scene
If-converted method, treasury stock machine
Anti-dilutive means it makes things better
Leave it out, don't make EPS lesser
[Verse 4]
Warrants work just like the options do
Exercise price versus market value
If the stock price is trading way below
Those warrants are anti-dilutive, let them go
[Outro]
From basic shares to complex securities
Diluted EPS shows true realities
Protect investors with the clearest view
Dilution calculation sees you through
18. Earnings Quality Assessment
[Verse 1]
When a company reports their earnings each year
The numbers might not be what they appear
Accruals can hide what's really going on
Cash flows reveal where the money's really gone
Look beyond the bottom line they show
Revenue recognition can ebb and flow
Timing differences paint a different scene
What's sustainable and what's just make-believe?
[Chorus]
Quality earnings tell the truth
Cash flows backing revenue proof
Accruals versus cash in hand
Shows you where the business stands
Quality earnings, that's the key
Separating fantasy from reality
[Verse 2]
Start with net income on the sheet
Then find the cash from operations beat
If there's a gap that's growing wide
Something fishy might be trying to hide
Working capital changes tell a tale
Accounts receivable might tip the scale
If sales are up but cash is low
Red flags are starting to show
[Chorus]
Quality earnings tell the truth
Cash flows backing revenue proof
Accruals versus cash in hand
Shows you where the business stands
Quality earnings, that's the key
Separating fantasy from reality
[Bridge]
One-time gains can boost the score
But they won't repeat anymore
Core operations should be strong
Sustainable earnings last long
Warning signs to watch for close
Cookie jar reserves and income smoothing shows
[Verse 3]
Earnings persistence is what you need
Not just a quarter's lucky deed
Conservative accounting wins
Better than aggressive spins
Management guidance tells their story
But independent audit brings the glory
Quality indicators never lie
They help investors see through the sky
[Chorus]
Quality earnings tell the truth
Cash flows backing revenue proof
Accruals versus cash in hand
Shows you where the business stands
Quality earnings, that's the key
Separating fantasy from reality
[Outro]
So when you analyze that financial report
Remember quality should be your last resort
Cash flows and accruals dancing together
Show if earnings can weather any weather
19. Balance Sheet Basics: Current vs Non-Current Classification
[Verse 1]
Let me tell you 'bout the balance sheet today
Where assets live and liabilities stay
But here's the key to reading it just right
You gotta know the timing, day and night
Current means it's coming due real soon
Within a year, like phases of the moon
Non-current takes a longer time to flow
More than twelve months, that's what you need to know
[Chorus]
Current flows within a year or less
Cash and inventory, accounts to collect
Non-current stays for longer than that
Buildings, bonds, and equipment where it's at
One year line divides them clean
Current versus non-current, know what they mean
[Verse 2]
On the asset side, let's break it down
Current assets keep the business sound
Cash in hand and money in the bank
Inventory waiting to be sold, give thanks
Accounts receivable, customers will pay
Within the year, they're current all the way
But buildings, land, and trucks that last for years
Non-current assets, that much is clear
[Chorus]
Current flows within a year or less
Cash and inventory, accounts to collect
Non-current stays for longer than that
Buildings, bonds, and equipment where it's at
One year line divides them clean
Current versus non-current, know what they mean
[Verse 3]
Now liabilities tell another tale
What the company owes without fail
Current liabilities must be paid soon
Accounts payable, wages, coming due
Short-term loans and taxes that are owed
Current classification, that's the code
But mortgages and bonds that stretch beyond
Non-current liabilities respond
[Bridge]
Why does this matter, you might ask
It's more than just an accounting task
Liquidity and risk, that's what we see
Current ratios show liquidity
Working capital tells us if they're strong
Current assets minus current wrongs
Non-current shows the long-term view
Strategic investments coming through
[Chorus]
Current flows within a year or less
Cash and inventory, accounts to collect
Non-current stays for longer than that
Buildings, bonds, and equipment where it's at
One year line divides them clean
Current versus non-current, know what they mean
[Outro]
So when you read that balance sheet today
Remember how to classify the way
One year is the magic line to see
Current versus non-current, the key to CFA
20. Comprehensive Income and OCI
[Verse 1]
Net income tells us part the story
But there's more beneath the hood
Comprehensive income shows the glory
Of changes that we understood
Some gains and losses bypass earnings
Go straight to equity instead
These items need our careful learning
To see where companies are led
[Chorus]
Comprehensive income is the key
PUFERD helps us remember what we see
Pensions, Unrealized gains today
Foreign currency that's moved away
Effective hedges, Revaluation too
Debt securities changing value blue
Total comp income shows it all
The bigger picture, standing tall
[Verse 2]
Other Comprehensive Income flows
To accumulated OCI
These items come and these items go
But bypass the income statement high
When pension plans change their funding
Or foreign rates shift up and down
These movements need our understanding
They paint a picture more profound
[Chorus]
Comprehensive income is the key
PUFERD helps us remember what we see
Pensions, Unrealized gains today
Foreign currency that's moved away
Effective hedges, Revaluation too
Debt securities changing value blue
Total comp income shows it all
The bigger picture, standing tall
[Bridge]
Analysts must look beyond
Simple net income alone
OCI reveals the bond
Between risk and what is shown
Volatility hiding there
In equity's quiet space
Smart investors must beware
Of what the statements don't embrace
[Chorus]
Comprehensive income is the key
PUFERD helps us remember what we see
Pensions, Unrealized gains today
Foreign currency that's moved away
Effective hedges, Revaluation too
Debt securities changing value blue
Total comp income shows it all
The bigger picture, standing tall
[Outro]
So when you analyze a firm
Don't stop at earnings per share
Look at OCI to confirm
The risks and rewards hiding there
Comprehensive tells the tale
Of all performance, win or fail
21. Balance Sheet Analysis
[Verse 1]
When you look at balance sheets, classification is the key
Current assets flow in one year, non-current stay with me
Cash and inventory moving, accounts receivable too
While equipment, land and buildings take a longer-term view
[Chorus]
Balance sheet analysis, read between the lines
FIFO, LIFO, weighted average help the numbers shine
Current and non-current, temporary differences too
Fair value hierarchy, let the balance sheet guide you
[Verse 2]
Inventory methods matter, FIFO's first in first out
Weighted average smooths the costs, LIFO leaves no doubt
Net realizable value, write it down when prices fall
LIFO reserve adjustments help you see them all
[Chorus]
Balance sheet analysis, read between the lines
FIFO, LIFO, weighted average help the numbers shine
Current and non-current, temporary differences too
Fair value hierarchy, let the balance sheet guide you
[Verse 3]
Long-lived assets tell a story, cost or revaluation way
Impairment tests are yearly, componentization's here to stay
Intangible assets growing, some are bought and some are made
Goodwill testing every year, make sure value doesn't fade
[Bridge]
Right-of-use and lease liabilities
Operating versus finance ratios
Deferred tax temporaries
Plan assets minus obligations
[Verse 4]
Financial instruments classified, fair value's got three levels
Quoted prices, inputs observed, unobservable revels
Pension accounting's complex, funded status tells the tale
Defined benefit obligations, service costs will never fail
[Chorus]
Balance sheet analysis, read between the lines
FIFO, LIFO, weighted average help the numbers shine
Current and non-current, temporary differences too
Fair value hierarchy, let the balance sheet guide you
[Outro]
Valuation allowances, when deferred tax assets doubt
Balance sheet analysis, that's what CFA's about
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