3.1. Financial Statements and Supplementary Information

#cfa-level-1 #fra-introduction #reading-22-financial-statement-analysis-intro

A complete set of financial statements include a statement of financial position (i.e., a balance sheet), a statement of comprehensive income (i.e., a single statement of comprehensive income or an income statement and a statement of comprehensive income), a statement of changes in equity, and a statement of cash flows.2 The balance sheet portrays the company’s financial position at a given point in time. The statement of comprehensive income and statement of cash flows present different aspects of a company’s performance over a period of time. The statement of changes in equity provides additional information regarding the changes in a company’s financial position. In addition, the accompanying notes or footnotes to the financial statements are required and considered an integral part of a complete set of financial statements.

Along with the required financial statements, a company typically provides additional information in its financial reports. In many jurisdictions, some or all of this additional information is mandated by regulators or accounting standards boards. The additional information provided may include a letter from the chairman of the company, a report from management discussing the results (typically called management discussion and analysis [MD&A] or management commentary), an external auditor’s report providing assurances, a governance report describing the structure of the company’s board of directors, and a corporate responsibility report. As part of his or her analysis, the financial analyst should read and assess this additional information along with the financial statements. The following sections describe and illustrate each financial statement and some of the additional information.


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