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Textbook
1. External financial reporting decisions
1.1 Financial statements
1.1.1 Learning outcome
1.1.2 Introduction to external financial reporting
1.1.3 Statement of financial position
1.1.4 Statement of comprehensive income
1.1.5 Statement of changes in equity
1.1.6 Statement of cash flows
1.1.7 Cash flow preparation
1.1.8 Notes to the financial statements
1.1.9 Consolidated financial statements
1.1.10 Integrated reporting
1.2 Financial transactions
2. Planning, budgeting, and forecasting
3. Performance management
4. Cost management
5. Internal control
6. Technology and analytics
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1.1.1 Learning outcome
Achievable CMA Part 1
1. External financial reporting decisions
1.1. Financial statements
Our CMA Part 1 course is currently in development and is a work-in-progress.

Learning outcome

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This page lists the tested learning outcomes for the financial statements, consolidation, and integrated reporting units of the CMA exam. Each outcome is developed in depth in its own dedicated chapter later in the course - think of this as a map of what you’ll be able to do by the time you’ve worked through the material ahead.

For the balance sheet, income statement, statement of changes in equity, and the statement of cash flows, the candidate should be able to:

  1. identify the users of these financial statements and their needs
  2. demonstrate an understanding of the purposes and uses of each statement
  3. identify the major components and classifications of each statement
  4. identify the limitations of each financial statement
  5. identify how various financial transactions affect the elements of each of the financial statements and determine the proper classification of a given transaction
  6. demonstrate an understanding of the relationship among the financial statements
  7. demonstrate an understanding of how a balance sheet, an income statement, a statement of changes in equity, and a statement of cash flows (indirect method) are prepared

With respect to consolidated financial statements prepared under U.S. GAAP, the candidate should be able to:

  1. define consolidated financial statements
  2. define the two types of consolidation models: variable interest entity model and voting interest model
  3. demonstrate an understanding of the three types of consolidation accounting: full consolidation, proportionate consolidation, and equity consolidation
  4. demonstrate an understanding of intercompany balances and transactions that should be eliminated in consolidation

With respect to integrated reporting, the candidate should be able to:

  1. define integrated reporting, integrated thinking, and the integrated report, and demonstrate an understanding of the relationship among them
  2. identify the primary purpose of integrated reporting
  3. explain the fundamental concepts of value creation, the six capitals, and the value creation process
  4. identify elements of an integrated report (i.e., organizational overview and external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook, and basis of preparation and presentation)
  5. identify and explain the benefits and challenges of adopting integrated reporting

Balance Sheet, Income Statement, Statement of Changes in Equity, Statement of Cash Flows

  • Users: investors, creditors, management; need info on financial position, performance, cash flows
  • Purposes:
    • Balance sheet: shows assets, liabilities, equity at a point in time
    • Income statement: measures revenues, expenses, profit over a period
    • Changes in equity: tracks changes in owners’ equity
    • Cash flows: reports cash inflows/outflows (operating, investing, financing)
  • Major components:
    • Balance sheet: assets (current/noncurrent), liabilities (current/noncurrent), equity
    • Income statement: revenues, expenses, gains/losses, net income
    • Changes in equity: opening/closing balances, contributions, distributions, net income
    • Cash flows: operating, investing, financing activities
  • Limitations: historical cost, non-financial info excluded, estimates/judgments, not all assets/liabilities recognized
  • Transaction effects: classification depends on nature (e.g., asset purchase increases assets, decreases cash)
  • Relationships: net income flows to equity; cash flows reconcile cash on balance sheet; changes in equity link statements
  • Preparation: follow accounting standards; use accrual basis; indirect method for cash flows adjusts net income for non-cash items

Consolidated Financial Statements (U.S. GAAP)

  • Definition: combined financial statements of parent and subsidiaries as a single entity
  • Consolidation models:
    • Variable interest entity (VIE) model: control through variable interests, not just voting rights
    • Voting interest model: control through majority voting rights
  • Types of consolidation accounting:
    • Full consolidation: combine 100% of subsidiary’s assets/liabilities/income
    • Proportionate consolidation: combine share of joint venture’s assets/liabilities/income
    • Equity consolidation (equity method): recognize investment and share of net income/loss
  • Intercompany eliminations: remove intercompany balances, transactions, unrealized profits/losses

Integrated Reporting

  • Definitions:
    • Integrated reporting: process of communicating value creation over time
    • Integrated thinking: holistic management of resources and relationships
    • Integrated report: concise communication about strategy, governance, performance
  • Primary purpose: explain how organization creates value over time for stakeholders
  • Fundamental concepts:
    • Value creation: process of increasing worth for stakeholders
    • Six capitals: financial, manufactured, intellectual, human, social/relationship, natural
    • Value creation process: inputs, business activities, outputs, outcomes
  • Elements of integrated report: organizational overview, external environment, governance, business model, risks/opportunities, strategy/resource allocation, performance, outlook, basis of preparation
  • Benefits/challenges:
    • Benefits: improved stakeholder communication, better decision-making, long-term focus
    • Challenges: complexity, data collection, integration into existing processes
Next  | 1.1.2 Introduction to external financial reporting
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Learning outcome

This page lists the tested learning outcomes for the financial statements, consolidation, and integrated reporting units of the CMA exam. Each outcome is developed in depth in its own dedicated chapter later in the course - think of this as a map of what you’ll be able to do by the time you’ve worked through the material ahead.

For the balance sheet, income statement, statement of changes in equity, and the statement of cash flows, the candidate should be able to:

  1. identify the users of these financial statements and their needs
  2. demonstrate an understanding of the purposes and uses of each statement
  3. identify the major components and classifications of each statement
  4. identify the limitations of each financial statement
  5. identify how various financial transactions affect the elements of each of the financial statements and determine the proper classification of a given transaction
  6. demonstrate an understanding of the relationship among the financial statements
  7. demonstrate an understanding of how a balance sheet, an income statement, a statement of changes in equity, and a statement of cash flows (indirect method) are prepared

With respect to consolidated financial statements prepared under U.S. GAAP, the candidate should be able to:

  1. define consolidated financial statements
  2. define the two types of consolidation models: variable interest entity model and voting interest model
  3. demonstrate an understanding of the three types of consolidation accounting: full consolidation, proportionate consolidation, and equity consolidation
  4. demonstrate an understanding of intercompany balances and transactions that should be eliminated in consolidation

With respect to integrated reporting, the candidate should be able to:

  1. define integrated reporting, integrated thinking, and the integrated report, and demonstrate an understanding of the relationship among them
  2. identify the primary purpose of integrated reporting
  3. explain the fundamental concepts of value creation, the six capitals, and the value creation process
  4. identify elements of an integrated report (i.e., organizational overview and external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook, and basis of preparation and presentation)
  5. identify and explain the benefits and challenges of adopting integrated reporting
Key points

Balance Sheet, Income Statement, Statement of Changes in Equity, Statement of Cash Flows

  • Users: investors, creditors, management; need info on financial position, performance, cash flows
  • Purposes:
    • Balance sheet: shows assets, liabilities, equity at a point in time
    • Income statement: measures revenues, expenses, profit over a period
    • Changes in equity: tracks changes in owners’ equity
    • Cash flows: reports cash inflows/outflows (operating, investing, financing)
  • Major components:
    • Balance sheet: assets (current/noncurrent), liabilities (current/noncurrent), equity
    • Income statement: revenues, expenses, gains/losses, net income
    • Changes in equity: opening/closing balances, contributions, distributions, net income
    • Cash flows: operating, investing, financing activities
  • Limitations: historical cost, non-financial info excluded, estimates/judgments, not all assets/liabilities recognized
  • Transaction effects: classification depends on nature (e.g., asset purchase increases assets, decreases cash)
  • Relationships: net income flows to equity; cash flows reconcile cash on balance sheet; changes in equity link statements
  • Preparation: follow accounting standards; use accrual basis; indirect method for cash flows adjusts net income for non-cash items

Consolidated Financial Statements (U.S. GAAP)

  • Definition: combined financial statements of parent and subsidiaries as a single entity
  • Consolidation models:
    • Variable interest entity (VIE) model: control through variable interests, not just voting rights
    • Voting interest model: control through majority voting rights
  • Types of consolidation accounting:
    • Full consolidation: combine 100% of subsidiary’s assets/liabilities/income
    • Proportionate consolidation: combine share of joint venture’s assets/liabilities/income
    • Equity consolidation (equity method): recognize investment and share of net income/loss
  • Intercompany eliminations: remove intercompany balances, transactions, unrealized profits/losses

Integrated Reporting

  • Definitions:
    • Integrated reporting: process of communicating value creation over time
    • Integrated thinking: holistic management of resources and relationships
    • Integrated report: concise communication about strategy, governance, performance
  • Primary purpose: explain how organization creates value over time for stakeholders
  • Fundamental concepts:
    • Value creation: process of increasing worth for stakeholders
    • Six capitals: financial, manufactured, intellectual, human, social/relationship, natural
    • Value creation process: inputs, business activities, outputs, outcomes
  • Elements of integrated report: organizational overview, external environment, governance, business model, risks/opportunities, strategy/resource allocation, performance, outlook, basis of preparation
  • Benefits/challenges:
    • Benefits: improved stakeholder communication, better decision-making, long-term focus
    • Challenges: complexity, data collection, integration into existing processes

More from Financial statements

  • Introduction to external financial reporting
  • Statement of financial position
  • Statement of changes in equity
  • Statement of cash flows
  • Notes to the financial statements