Financial Reporting & Analysis

[naivetrader]

Hi guys,
I have just passed CFA lvl 1 in June. The only subject i got <50% on was FRA.
Considering this is the largest part of lvl 1 and a substantial weighting in lvl 2, would you reccomend me to take another look at the FRA material from lvl 1? or just pursure studying for lvl 2 and maybe devoting more time on lvl 2?
Thanks!!!

 

[Vineet Saini]

Level II FRA has 2 chapters that are exactly similar to that of level I FRA - Inventory and Long-lived assets. So, you should be good in both of those chapters.
Other chapters are however more important in level II FRA especially related to Intercorporate Investments, Pension and Multinational Operations. These topics are new but still a good understanding of basic accounting would definitely aid in the understanding of level II topics.
CFA level I FRA will be more helpful in Equity as one of the most important chapter in Equity (Free Cash Flow Valuation) deals with the cash flow. So, you should be pretty good in cash flow chapter from level I FRA.
Just foucs a bit more and I think you should be fine with that. All the best, amigo.

 

[Alex74]

In my opinion it is generellay not necessary to reread the Level 1 FRA sections. Everything you need to know is covered by the Level 2 curriculum. And as Vineet Saini wrote some readings in Level 2 cover exact the same topics as in Level 1.
There’s only one exception from what I wrote before. You are expected to know and understand all the financial ratios that were introduced in Level 1 (Current Ratio, Interest Burden, Days Of Sales Outstading etc.). As far as I can remember you don’t have further explanations of these ratios in the Level 2 curriculum. You may have to reread some of the stuff in your Level 1 books.
With <50% in the Level 1 exam I would recommend to begin early with learning FRA as Level 2 contains (at least for me) more complex and more difficult FRA topics than Level 1 (especially benefit plans, multinational operations, intercorporate investments).

 

[fullset]

In the order of importance:
1. Pension accounting - generally speaking, you can reasonably expect one item set on this. Definitely one of the hardest topics on level 2 FRA. When reading this topic, make sure that you understand the difference between treatments of item that go to I/S and OCI. I think curriculum has a good table on it. I can’t recomment wiley notes enough for this reading.
2. Multinational accounting - generally speaking, you can reasonably expect almost one item set on this. Make sure you know the difference between current rate method and temporal method. Pray for an item set on current rate rather than temporal. If you get temporal rate, make sure you know the difference between monetary and non-monetary assets & liabilities. Kaplan reading will do the job.
3. Intercoporate investment - generally speaking, you can reasonably expect almost one item set on this. Overlap from L1 FRA if investment is <20% & no influence. Learn equity and acquisition method very well. Practice the h**l out of it. Understand and practice upstream/downstream investments.
4. Inventory & Long-lived assets - Entirely from L1 with a few more details.
5. FRA techniques - mostly ratios with a little more depth on issues like accrual based accounting. Make sure you know the calculation of ratios like the back of your hand. Know what the number means i.e is higher number good or bad. This reading could have 1-2 question in any item set.
I think FRA has a weight of 15-20%. If there are 3 item sets, there is a very high likelihood that they are from pension, MNO, and ICI with FRA techniques thrown in here and there. If there are 4 item sets, there is a decent likelihood that the 4th is a combination of inventory, long lived assets and FRA techniques.
I don’t know if there are any new readings in FRA this year. If there are, then you can expect a few questions from that also. Hope this helps.

 

[ltj]

I believe the CFAI curriculum include a list of the ratios you are expected to know at the beginning of the FRA book. So no, do not bother going back to anything from L1.

 

[JZA]

ltj wrote:
I believe the CFAI curriculum include a list of the ratios you are expected to know at the beginning of the FRA book. So no, do not bother going back to anything from L1.

Yep you are correct, printed these 2 pages out (40 ratios/formulas) and it’s sitting on my desk as I type this.
I just got my books and starting on FRA since it’s the largest section and I’m not particularly strong with it. Can’t hurt to start early as I’m not worried about burning out. Or maybe I’m just leaving myself enough time to burnout and then recover.

 

[Harrogath]

JZA wrote:

ltj wrote:
I believe the CFAI curriculum include a list of the ratios you are expected to know at the beginning of the FRA book. So no, do not bother going back to anything from L1.

Yep you are correct, printed these 2 pages out (40 ratios/formulas) and it’s sitting on my desk as I type this.
I just got my books and starting on FRA since it’s the largest section and I’m not particularly strong with it. Can’t hurt to start early as I’m not worried about burning out. Or maybe I’m just leaving myself enough time to burnout and then recover.

A way to prevent a burning out is to start early. You don’t burn out due to a continue study in time, you burn out when you study much more than allowed, when you sleep a few hours because you need cover the undone pages or exercises, or when you just leave eating well or eating at odd times. There is the burn out.