Financial Statement Analysis - CFA Smart Tips To Pass L2

This training is extremely different from the other programs and has been battle tested by thousands of CFA Candidates.

No matter where you stand in your preparation this program is powerful and will give you the confidence and the elements you are missing.

The program has been designed to make complicated concepts easy. It is especially intended for those who have difficulties going through the material alone.

Whatever the material you like and picked for your preparation, this program will help you take the most out of your investment and time spent actually studying.

Investing in this training is like getting a personal one-on-one helicopter ride to the top of the mountain. You don't have to climb it yourself.

Throughout this course we will celebrate your progress at 25%, 50%, 75% and 100%. I really want you to succeed but you need to take action and keep going so look forward to these milestones of progress. I will see you there and cheer you on as you keep going from one milestone to the next >>

Pension Accounting is the centre-piece of the CFA Level 2 Topic Area: Financial Statement Analysis (FSA). We start here by first discussing the two different types of pension plans offered by companies:

1. Defined Benefit (DB) Plan (This is more important and discussed in detail)

2. Defined Contribution (DC) Plan (Not important for the exam and discussed superficially)

On the Balance Sheet, Pension Liability is reported as Projected Benefit Obligation (PBO) in U.S GAAP and Present Value of Defined Benefit Obligation (PVDBO) in IFRS. PBO or PVDBO is composed of the following components/factors:

1. Service Cost

2. Interest Cost

3. Actuarial Gains or Losses

4. Past Service Costs

5. Benefits Paid

On the Balance Sheet, Pension Assets are reported as Fair Value of Plan Assets (FVPA). FVPA is composed of the following components/factors:

1. Actual Return on Plan Assets

2. Employee and Employer Contributions

3. Expenses of managing the plan assets

4. Benefits Paid

The differences in U.S. GAAP and IFRS treatment of the components of the periodic pension cost is a highly likely testable topic for the CFA Level 2 Exam. This lecture is the first part of the total three parts of video lectures that discuss this topic in detail. The following components of the periodic pension costs are covered in this lecture:

1. Current Service Cost

2. Interest Cost

3. Expected Return on Plan Assets

This lecture is the second part of the total three parts of video lectures that discuss the topic "Differences in U.S. GAAP and IFRS treatment of the components of the periodic pension cost".  The following components of the periodic pension costs are covered in this lecture:

1. Actuarial Gains & Losses

This lecture is the third and the last part of the total three parts of video lectures that discuss the topic "Differences in U.S. GAAP and IFRS treatment of the components of the periodic pension cost".  The following components of the periodic pension costs are covered in this lecture:

1. Past (Prior) Service Costs

Total Period Pension Cost (TPPC) is an important metric for a Defined Benefit Pension Plan. It tells you about the contributions made by the employer in any given period and the change in the funded status of the plan. Watch and learn the formula for calculating TPPC. Please note that the treatment of TPPC under IFRS and U.S. GAAP are similar.

Throughout this course we will celebrate your progress at 25%, 50%, 75% and 100%. I really want you to succeed but you need to take action and keep going so look forward to these milestones of progress. I will see you there and cheer you on as you keep going from one milestone to the next >>

The reading Multinational Operations is the centrepiece of CFA level 2 topic area Financial Statement Analysis (FSA). It is one of the most testable topics for the exam. Multinational Operations is covered in six video lectures over here. This video lecture is an introductory lecture to Multinational Operations. Jhan will discuss the two types of foreign currency exposures faced by a company i.e. Transaction vs Translation Exposure.

Now, we will focus on Translation Methods. Two methods exist to convert the results of a foreign

subsidiary into the parent’s consolidated financial statements:

1. All Current-Rate Method

2. Temporal Method

The lecture also discusses the three types of currencies involved in the translation methods:

1. Local Currency

2. Functional Currency

3. Presentation/Reporting Currency

This lecture introduces you to the 'All Current Method' of translation. You will also learn about the following:

1. Current Exchange Rate

2. Average Exchange Rate

3. Historic Exchange Rate

Guidelines for applying the All Current Method are also discussed.

The All Current Method is as easy as AiBC. This term is actually a mnemonic and it can be used to apply the All Current Method in a very simple manner. In this term AiBC:

• A is used for the Average Rate

• i is used for the income statement

• B is used for the Balance Sheet

• C is used for the Current rate.

The process of translating the financial statements of a foreign subsidiary using the All Current Method starts with the income statement.

1. All the items in the income statement are translated using the average rate.

2. Then we call the second step Bridge in which the closing retained earnings are calculated given the opening retained earnings, Net Income from the Income Statement and Dividends translated at the historic rate.

3. Finally, the third step is to convert the Balance Sheet using the current exchange rate for almost every account except the equity.

All of this is beautifully explained using a coloured flowchart. Open the worksheet to access it.

The currency exposure of a firm is another critical concept to learn for the CFA Level 2 FSA Section. Firms using the All Current Method for translation expose their Net Assets. If the Net Assets are positive (in most cases), then the depreciation of the local currency will generate an FX loss. This loss is reported in the Cumulative Translation Adjustment (CTA). 

The concept of currency exposure is explained with an example in this lecture.

Throughout this course we will celebrate your progress at 25%, 50%, 75% and 100%. I really want you to succeed but you need to take action and keep going so look forward to these milestones of progress. I will see you there and cheer you on as you keep going from one milestone to the next >>

Before we dive into the world of the Temporal Method, let's first recap the All Current Method. Remember that the Temporal Method is a special case of the All Current Method. A good solid understanding of the latter will help and make it easier to comprehend the former.

This is an introductory lecture to the Temporal Method. The Temporal Method is used when the functional currency and the reporting currency are the same. It is used to remeasure the financial statements of the foreign subsidiary by converting the local currency into functional currency. The same AiBC rule can be followed but it has to apply in the reverse order. We will start from the Balance Sheet, then the Bridge, and finally the Income Statement.

As already mentioned, the Temporal Method is a special case of the All Current Method. Most of the accounts on the income statement and the balance sheet are translated using the average and the current exchange rates, respectively, but with a few exceptions. These exceptions are for non-monetary assets and liabilities. Watch this lecture to learn the difference between monetary and non-monetary assets/liabilities.

This lecture sums it all up. Like in the case of the All Current Method, a beautiful coloured flow chart is drawn in this lecture which explains the whole process of the Temporal Method.

1. It starts from the Balance Sheet, where all the monetary assets/liabilities are remeasured using the current exchange rate and all the non-monetary assets/liabilities are remeasured using the historic exchange rate.

2. Then the Bridge step, where the Net Income is a plug figure because we already are given the opening Retained Earnings, Dividends remeasured at Historic Rate, and the Closing Retained Earnings are known from step 1 (The Balance Sheet).

3. Finally, the third step is to remeasure the income statement using the mix of the average exchange rate and the historic exchange rate. All the items related to monetary assets/liabilities are remeasured using the average exchange rate and all the items related to non-monetary assets/liabilities are remeasured using the historic exchange rate.

The last step is to calculate the Remeasurement Gain or Loss.  Since we already know the Net Income from step 2 (Bridge), the remeasurement gain or loss is just a plug figure in the remeasured income statement. The difference between Net Income and Earning Before Tax is the Remeasurement gain or loss.

This lecture discusses the currency exposure of a firm using the Temporal Method to consolidate its financial statements. In the Temporal Method, the current exchange rate is used to remeasure only the monetary assets/liabilities. Therefore, the currency exposure is Net Monetary Assets/Liabilities. Understand this concept with an example in this lecture. The example discussed in this lecture also involves the calculation of Remeasurement Gain or Loss. Watch It !

Throughout this course we will celebrate your progress at 25%, 50%, 75% and 100%. I really want you to succeed but you need to take action and keep going so look forward to these milestones of progress. I will see you there and cheer you on as you keep going from one milestone to the next >>

In this introduction to the webinar interview, Jhan explains his background as a CFA trainer. He explains what the CFA is, as well as other, similar qualifications that people consider. Jhan calls CFA the "gold standard" in the finance industry, especially with the top firms at which he has been spending many years training employees.

Jhan gives advice for people thinking about getting into CFA and he emphasizes the investment in time that it will require. He compares CFA to the other qualifications which are more expensive but require less time and are less well known. Jhan talks about the number of hours required and the different levels of the CFA.

An audience member asks about how university finance degrees fit with the CFA curriculum. Jhan explains that he does a lot of work with universities and although CFA is a post graduate qualification, often universities will give students time and support towards their CFA exams. Another student asked what advice Jhan would give to be prepared for their Level 1 exam in a few months time.

Peter asks Jhan about his unique teaching style for CFA and why he started recording all his teaching lessons. Jhan talks about how he had a non-financial background and has developed very interesting and memorable ways of teaching, precisely because he had to work it all out for himself. His lessons focus on a way of of learning rather than adding to the high volume of material that CFA students already have to deal with.

An audience member with a BCom in Financial Management asks if CFA would be useful in pursuing a career in financial crime. Jhan explains that CFA has such huge credibility in the industry and it's the world's largest and most recognised financial literacy qualification which would definitely prepare a student for many financial careers.

Jhan answers a question and provides the career options for CFA; wholesale finance, portfolio analysts and roles on the "buy side". He emphasizes that any financial centre such as London, New York or Shanghai will recognise the CFA "passport".

An engineer asks about how complex the accountancy is in the exam and how long it would take to cover that aspect of the exam. Jhan explains that there are many engineers who have done CFA and that engineering is also an analytical career, just like CFA. Jhan doesn't teach in the traditional accountancy format, like a book keeper, he uses real life examples and helps people make sense of the economic realities of investment decisions.

Peter talks about how he found Jhan's accountancy lecture to be very authentic, which uses the "ALE" mnemonic (Assets = Liabilities + Equity). An audience member asks whether Jhan would recommend a CFA over finance honours. Watch to find out Jhan's answer.

Peter quizzes Jhan on the support that he plans to provide students. Jhan explained:

(1) It's all about community, which is available in the CFA Secrets Facebook group and how people will be able get more help and also help each other.

(2) Support and access to experts through the group and online courses which will be rolled out in the coming months to give CFA students the topic based teaching they need.

Jhan explains how his courses are not "cover to cover" but rather focus on the critical areas that will ensure you pass.

An audience member explains that he failed the CFA Level 1 5 years ago and Peter asks Jhan if he can help this person. Jhan gives the data on the very low pass rates for CFA but is very proud of his own student pass rates which is very high in the industry. Peter mentions the endorsements that Jhan has on his LinkedIn page which are an indication of the credibility that Jhan has in the industry. Jhan offers everyone to connect with him on LinkedIn.

Jhan explains the options after passing each of the levels of CFA. Tracey Ashington joined the webinar interview; she is a graduate recruiter for large international banks and explained that CFA is always the most reliable finance qualification that banks look for.

Peter and Tracey announce the winner of the laptop and there was a big surprise: another laptop had become available so Tracey was able to give another one away, based on the rules of the competition. Then Jhan gives a laptop away to the first person who was able to answer the question about how many levels there are in CFA.

In this one hour interview, Peter and Jhan talk extensively about CFA teaching, careers, his teaching techniques and Jhan answers a number of questions from the audience. Learn more about CFA from one of the most respected CFA trainers in the industry and find out more about the teaching content, community and support he is making available to help even more people achieve CFA success. You will also see an audience member win a laptop by answering a question in the webinar.

The CFA exams are 6 weeks away and we are here to help. Jhan Burger is one of the industry's leading CFA instructors with satisfied students all around the world. Make sure you have the right plan to pass, join us in this webinar and get the best advice and support for your success!