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© CFA Institute. For candidate use only. Not for distribution. FINANCIAL REPORTING AND ANALYSIS CFA® Program Curriculum 2020 • LEVEL II • VOLUME 2 © CFA Institute. For candidate use only. Not for distribution. © 2019, 2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011, 2010, 2009, 2008, 2007, 2006 by CFA Institute. All rights reserved. This copyright covers material written expressly for this volume by the editor/s as well as the compilation itself. It does not cover the individual selections herein that first appeared elsewhere. Permission to reprint these has been obtained by CFA Institute for this edition only. Further reproductions by any means, electronic or mechanical, including photocopying and recording, or by any information storage or retrieval systems, must be arranged with the individual copyright holders noted. CFA®, Chartered Financial Analyst®, AIMR-PPS®, and GIPS® are just a few of the trademarks owned by CFA Institute. To view a list of CFA Institute trademarks and the Guide for Use of CFA Institute Marks, please visit our website at www.cfainstitute.org. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. All trademarks, service marks, registered trademarks, and registered service marks are the property of their respective owners and are used herein for identification purposes only. ISBN 978-1-946442-83-3 (paper) ISBN 978-1-950157-07-5 (ebk) 10 9 8 7 6 5 4 3 2 1 © CFA Institute. For candidate use only. Not for distribution. CONTENTS How to Use the CFA Program Curriculum Background on the CBOK Organization of the Curriculum Features of the Curriculum Designing Your Personal Study Program Feedback v v vi vi viii ix Financial Reporting and Analysis Study Session 5 Financial Reporting and Analysis (1) Reading 13 Intercorporate Investments 7 Introduction 8 Basic Corporate Investment Categories 8 Investments in Financial Assets: IFRS 9 10 Classification and Measurement 10 Reclassification of Investments 12 Investments in Associates and Joint Ventures 13 Equity Method of Accounting: Basic Principles 14 Investment Costs That Exceed the Book Value of the Investee 17 Amortization of Excess Purchase Price 19 Fair Value Option 21 Impairment 21 Transactions with Associates 22 Disclosure 25 Issues for Analysts 25 Business Combinations 26 Acquisition Method 28 Impact of the Acquisition Method on Financial Statements, Post- Acquisition 30 The Consolidation Process 32 Financial Statement Presentation Subsequent to the Business Combination 38 Variable Interest and Special Purpose Entities 41 Additional Issues in Business Combinations That Impair Comparability 44 Summary 45 Practice Problems 47 Solutions 58 Reading 14 Employee Compensation: Post-Employment and Share-Based Introduction Pensions and Other Post-Employment Benefits Types of Post-Employment Benefit Plans Measuring a Defined Benefit Pension Plan’s Obligations indicates an optional segment 5 63 64 64 65 67 ii © CFA Institute. For candidate use only. Not for distribution. Contents Financial Statement Reporting of Pension Plans and Other Post- Employment Benefits Disclosures of Pension and Other Post-Employment Benefits Share-Based Compensation Stock Grants Stock Options Other Types of Share-Based Compensation Summary Practice Problems Solutions Reading 15 Reading 16 69 80 90 93 94 97 97 99