You are a new employee of a firm. before you are assigned your first audit

You are a new employee of a firm. before you are assigned your first audit, your supervisor tests your knowledge and asks you to explain the term "scope" in the context of the financial statement analysis.

write 8-10 sentences.

Expert Solution

The scope of financial statement analysis can be explained as under -

1. Company’s financial position and performance, including profitability and financial position with explanation of performance.

2. Comparison of different items related to income statement and balance sheet for two consecutive years in the form of comparative income statement and comparative balance sheet.

3. Statement of comprehensive income (or two statements consisting of an income statement and a statement of comprehensive income).

4. Proportion of different items regarding income statement and financial position by common size income statement and common size balance sheet.

5. Statement of equity including stock of shares and retained earnings.

6. Numeric relationship among various item related to income and financial position in the form of ratio analysis to explain profitability, liquidity, solvency and performance in relative terms for stakeholder of the company.

7. Movement of cash during a particular period of time in form of cash flow statement where inflows and outflows of cash and cash equivalent are considered.

8. Trend of performance regarding different elements of income and financial position in the form of trend analysis.

ekkarill92 answered 2 years ago

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You are a new employee of a firm. before you are assigned your first audit

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