CFA Level 2 - LOS s 2014-2015 Ethics Ethics Ethics Ethics Ethics Ethics Topic LOS Level II - 2014 (477 LOS) LOS Level II - 2015 (468 LOS) Compared 1.1.a 1.1.b 1.2.a 1.2.b 1.3.a 1.3.b describe the six components of the Code of Ethics and the seven Standards of Professional Conduct explain the ethical responsibilities required of CFA Institute members and candidates in the CFA Program by the Code and Standards demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specific situations recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct define soft-dollar arrangements, and state the general principles of the Soft Dollar Standards evaluate company soft-dollar practices and policies 1.1.a 1.1.b 1.2.a 1.2.b describe the six components of the Code of Ethics and the seven Standards of Professional Conduct explain the ethical responsibilities required of CFA Institute members and candidates in the CFA Program by the Code and Standards demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specific situations recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct Ethics Ethics Ethics Ethics 1.3.c 1.4.a 1.4.b 2.5.a determine whether a product or service qualifies as permissible research that can be purchased with client brokerage explain the objectives of the Research Objectivity Standards evaluate company policies and practices related to research objectivity, and distinguish between changes required and changes recommended for compliance with the Research Objectivity Standards evaluate the practices and policies presented 1.3.a 1.3.b 2.4.a explain the objectives of the Research Objectivity Standards evaluate company policies and practices related to research objectivity, and distinguish between changes required and changes recommended for compliance with the Research Objectivity Standards evaluate the practices and policies presented or Accounting Questions? Go to passingscoreforum.com 1
Ethics Ethics Ethics Ethics Ethics Ethics Ethics Ethics Ethics Ethics Ethics Ethics Topic LOS Level II - 2014 (477 LOS) LOS Level II - 2015 (468 LOS) Compared 2.5.b 2.6.a 2.6.b 2.7.a 2.7.b 2.8.a 2.8.b 2.9.a 2.9.b 2.10.a 2.10.b 2.10.c explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct evaluate the practices and policies presented explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct evaluate the practices and policies presented explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct evaluate trade allocation practices, and determine whether they comply with the CFA Institute Standards of Professional Conduct addressing fair dealing and client loyalty describe appropriate actions to take in response to trade allocation practices that do not adequately respect client interests evaluate the disclosure of investment objectives and basic policies, and determine whether they comply with the CFA Institute Standards of Professional Conduct describe appropriate actions needed to ensure adequate disclosure of the investment process explain the basic principles of the new Prudent Investor Rule explain general fiduciary standards to which a trustee must adhere distinguish between the old Prudent Man Rule and the new Prudent Investor Rule 2.4.b 2.5.a 2.5.b 2.6.a 2.6.b 2.7.a 2.7.b 2.8.a 2.8.b explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct evaluate the practices and policies presented explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct evaluate the practices and policies presented explain the appropriate action to take in response to conduct that violates the CFA Institute Code of Ethics and Standards of Professional Conduct evaluate trade allocation practices, and determine whether they comply with the CFA Institute Standards of Professional Conduct addressing fair dealing and client loyalty describe appropriate actions to take in response to trade allocation practices that do not adequately respect client interests evaluate the disclosure of investment objectives and basic policies, and determine whether they comply with the CFA Institute Standards of Professional Conduct describe appropriate actions needed to ensure adequate disclosure of the investment process or Accounting Questions? Go to passingscoreforum.com 2
Ethics Topic LOS Level II - 2014 (477 LOS) LOS Level II - 2015 (468 LOS) Compared 2.10.d 3.11.a 3.11.b 3.11.c 3.11.d 3.11.e 3.11.f 3.11.g 3.11.h 3.11.i 3.11.j explain key factors that a trustee should consider when investing and managing trust assets calculate and interpret a sample covariance and a sample correlation coefficient, and interpret a scatter plot describe limitations to correlation analysis formulate a test of the hypothesis that the population correlation coefficient equals zero, and determine whether the hypothesis is rejected at a given level of significance distinguish between the dependent and independent variables in a linear regression describe the assumptions underlying linear regression, and interpret regression coefficients calculate and interpret the standard error of estimate, the coefficient of determination, and a confidence interval for a regression coefficient formulate a null and alternative hypothesis about a population value of a regression coefficient, and determine the appropriate test statistic and whether the null hypothesis is rejected at a given level of significance calculate the predicted value for the dependent variable, given an estimated regression model and a value for the independent variable calculate and interpret a confidence interval for the predicted value of the dependent variable describe the use of analysis of variance (ANOVA) in regression analysis, interpret ANOVA results, and calculate and interpret the F-statistic 3.9.a 3.9.b 3.9.c 3.9.d 3.9.e 3.9.f 3.9.g 3.9.h 3.9.i 3.9.j calculate and interpret a sample covariance and a sample correlation coefficient, and interpret a scatter plot describe limitations to correlation analysis formulate a test of the hypothesis that the population correlation coefficient equals zero, and determine whether the hypothesis is rejected at a given level of significance distinguish between the dependent and independent variables in a linear regression describe the assumptions underlying linear regression, and interpret regression coefficients calculate and interpret the standard error of estimate, the coefficient of determination, and a confidence interval for a regression coefficient formulate a null and alternative hypothesis about a population value of a regression coefficient, and determine the appropriate test statistic and whether the null hypothesis is rejected at a given level of significance calculate the predicted value for the dependent variable, given an estimated regression model and a value for the independent variable calculate and interpret a confidence interval for the predicted value of the dependent variable describe the use of analysis of variance (ANOVA) in regression analysis, interpret ANOVA results, and calculate and interpret the F-statistic or Accounting Questions? Go to passingscoreforum.com 3
3.11.k 3.12.a 3.12.b 3.12.c 3.12.d 3.12.e 3.12.f 3.12.g 3.12.h 3.12.i describe limitations of regression analysis formulate a multiple regression equation to describe the relation between a dependent variable and several independent variables, and determine the statistical significance of each independent variable interpret estimated regression coefficients and their p-values formulate a null and an alternative hypothesis about the population value of a regression coefficient, calculate the value of the test statistic, and determine whether to reject the null hypothesis at a given level of significance interpret the results of hypothesis tests of regression coefficients calculate and interpret 1) a confidence interval for the population value of a regression coefficient and 2) a predicted value for the dependent variable, given an estimated regression model and assumed values for the independent variables explain the assumptions of a multiple regression model calculate and interpret the F-statistic, and describe how it is used in regression analysis distinguish between and interpret the R2 and adjusted R2 in multiple regression evaluate how well a regression model explains the dependent variable by analyzing the output of the regression equation and an ANOVA table 3.9.k 3.10.a 3.10.b 3.10.c 3.10.d 3.10.e 3.10.f 3.10.g 3.10.h 3.10.i describe limitations of regression analysis formulate a multiple regression equation to describe the relation between a dependent variable and several independent variables, and determine the statistical significance of each independent variable interpret estimated regression coefficients and their p-values formulate a null and an alternative hypothesis about the population value of a regression coefficient, calculate the value of the test statistic, and determine whether to reject the null hypothesis at a given level of significance interpret the results of hypothesis tests of regression coefficients calculate and interpret 1) a confidence interval for the population value of a regression coefficient and 2) a predicted value for the dependent variable, given an estimated regression model and assumed values for the independent variables explain the assumptions of a multiple regression model calculate and interpret the F-statistic, and describe how it is used in regression analysis distinguish between and interpret the R2 and adjusted R2 in multiple regression evaluate how well a regression model explains the dependent variable by analyzing the output of the regression equation and an ANOVA table or Accounting Questions? Go to passingscoreforum.com 4
3.12.j 3.12.k 3.12.l 3.12.m 3.12.n 3.12.o 3.13.a 3.13.b 3.13.c 3.13.d formulate a multiple regression equation by using dummy variables to represent qualitative factors, and interpret the coefficients and regression results explain the types of heteroskedasticity and how heteroskedasticity and serial correlation affect statistical inference describe multicollinearity, and explain its causes and effects in regression analysis describe how model misspecification affects the results of a regression analysis, and describe how to avoid common forms of misspecification describe models with qualitative dependent variables evaluate and interpret a multiple regression model and its results calculate and evaluate the predicted trend value for a time series, modeled as either a linear trend or a log-linear trend, given the estimated trend coefficients describe factors that determine whether a linear or a log-linear trend should be used with a particular time series, and evaluate limitations of trend models explain the requirement for a time series to be covariance stationary, and describe the significance of a series that is not stationary describe the structure of an autoregressive (AR) model of order p, and calculate one- and two-periodahead forecasts given the estimated coefficients 3.10.j 3.10.k 3.10.l 3.10.m 3.10.n 3.10.o 3.11.a 3.11.b 3.11.c 3.11.d formulate a multiple regression equation by using dummy variables to represent qualitative factors, and interpret the coefficients and regression results explain the types of heteroskedasticity and how heteroskedasticity and serial correlation affect statistical inference describe multicollinearity, and explain its causes and effects in regression analysis describe how model misspecification affects the results of a regression analysis, and describe how to avoid common forms of misspecification describe models with qualitative dependent variables evaluate and interpret a multiple regression model and its results calculate and evaluate the predicted trend value for a time series, modeled as either a linear trend or a log-linear trend, given the estimated trend coefficients describe factors that determine whether a linear or a log-linear trend should be used with a particular time series, and evaluate limitations of trend models explain the requirement for a time series to be covariance stationary, and describe the significance of a series that is not stationary describe the structure of an autoregressive (AR) model of order p, and calculate one- and two-periodahead forecasts given the estimated coefficients or Accounting Questions? Go to passingscoreforum.com 5
3.13.e 3.13.f 3.13.g 3.13.h 3.13.i 3.13.j 3.13.k 3.13.l 3.13.m 3.13.n explain how autocorrelations of the residuals can be used to test whether the autoregressive model fits the time series explain mean reversion, and calculate a mean-reverting level contrast in-sample and out-of-sample forecasts, and compare the forecasting accuracy of different time-series models based on the root mean squared error criterion explain the instability of coefficients of time-series models describe characteristics of random walk processes, and contrast them to covariance stationary processes describe implications of unit roots for time-series analysis, explain when unit roots are likely to occur and how to test for them, and demonstrate how a time series with a unit root can be transformed so it can be analyzed with an AR model describe the steps of the unit root test for nonstationarity, and explain the relation of the test to autoregressive time-series models explain how to test and correct for seasonality in a time-series model, and calculate and interpret a forecasted value using an AR model with a seasonal lag explain autoregressive conditional heteroskedasticity (ARCH), and describe how ARCH models can be applied to predict the variance of a time series explain how time-series variables should be analyzed for nonstationarity and/or cointegration before use in a linear regression 3.11.e 3.11.f 3.11.g 3.11.h 3.11.i 3.11.j 3.11.k 3.11.l 3.11.m 3.11.n explain how autocorrelations of the residuals can be used to test whether the autoregressive model fits the time series explain mean reversion, and calculate a mean-reverting level contrast in-sample and out-of-sample forecasts, and compare the forecasting accuracy of different time-series models based on the root mean squared error criterion explain the instability of coefficients of time-series models describe characteristics of random walk processes, and contrast them to covariance stationary processes describe implications of unit roots for time-series analysis, explain when unit roots are likely to occur and how to test for them, and demonstrate how a time series with a unit root can be transformed so it can be analyzed with an AR model describe the steps of the unit root test for nonstationarity, and explain the relation of the test to autoregressive time-series models explain how to test and correct for seasonality in a time-series model, and calculate and interpret a forecasted value using an AR model with a seasonal lag explain autoregressive conditional heteroskedasticity (ARCH), and describe how ARCH models can be applied to predict the variance of a time series explain how time-series variables should be analyzed for nonstationarity and/or cointegration before use in a linear regression or Accounting Questions? Go to passingscoreforum.com 6
3.13.o 4.14.a 4.14.b determine an appropriate time-series model to analyze a given investment problem, and justify that choice calculate and interpret the bid ask spread on a spot or forward foreign currency quotation and describe the factors that affect the bid offer spread identify a triangular arbitrage opportunity, and calculate its profit, given the bid offer quotations for three currencies 3.11.o 4.12.a 4.12.b determine an appropriate time-series model to analyze a given investment problem, and justify that choice calculate and interpret the bid ask spread on a spot or forward foreign currency quotation and describe the factors that affect the bid offer spread identify a triangular arbitrage opportunity and calculate its profit, given the bid offer quotations for three currencies 4.14.c 4.14.d 4.14.e 4.14.f 4.14.g 4.14.h distinguish between spot and forward rates and calculate the forward premium/ discount for a given currency calculate the mark-to-market value of a forward contract explain international parity relations (covered and uncovered interest rate parity, purchasing power parity, and the international Fisher effect) describe relations among the international parity conditions evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates explain approaches to assessing the long-run fair value of an exchange rate 4.12.c 4.12.d 4.12.e 4.12.f 4.12.g 4.12.h distinguish between spot and forward rates and calculate the forward premium/ discount for a given currency calculate the mark-to-market value of a forward contract explain international parity relations (covered and uncovered interest rate parity, purchasing power parity, and the international Fisher effect) describe relations among the international parity conditions evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates explain approaches to assessing the long-run fair value of an exchange rate 4.14.i 4.14.j 4.14.k describe the carry trade and its relation to uncovered interest rate parity and calculate the profit from a carry trade explain how flows in the balance of payment accounts affect currency exchange rates describe the Mundell Fleming model, the monetary approach, and the asset market (portfolio balance) approach to exchange rate determination 4.12.i 4.12.j 4.12.k describe the carry trade and its relation to uncovered interest rate parity and calculate the profit from a carry trade explain how flows in the balance of payment accounts affect currency exchange rates describe the Mundell Fleming model, the monetary approach, and the asset market (portfolio balance) approach to exchange rate determination or Accounting Questions? Go to passingscoreforum.com 7
4.14.l 4.14.m 4.14.n 4.14.o 4.14.p 4.15.a 4.15.b 4.15.c 4.15.d 4.15.e 4.15.f forecast the direction of the expected change in an exchange rate based on balance of payment, Mundell Fleming, monetary, and asset market approaches to exchange rate determination explain the potential effects of monetary and fiscal policy on exchange rates describe objectives of central bank intervention and capital controls and describe the effectiveness of intervention and capital controls describe warning signs of a currency crisis describe uses of technical analysis in forecasting exchange rates compare factors favoring and limiting economic growth in developed and developing economies describe the relation between the longrun rate of stock market appreciation and the sustainable growth rate of the economy explain why potential GDP and its growth rate matter for equity and fixed income investors distinguish between capital deepening investment and technological progress and explain how each affects economic growth and labor productivity forecast potential GDP based on growth accounting relations explain how natural resources affect economic growth and evaluate the argument that limited availability of natural resources constrains economic growth 4.12.l 4.12.m 4.12.n 4.12.o 4.12.p 4.13.a 4.13.b 4.13.c 4.13.d 4.13.e 4.13.f forecast the direction of the expected change in an exchange rate based on balance of payment, Mundell Fleming, monetary, and asset market approaches to exchange rate determination explain the potential effects of monetary and fiscal policy on exchange rates describe objectives of central bank intervention and capital controls and describe the effectiveness of intervention and capital controls describe warning signs of a currency crisis describe uses of technical analysis in forecasting exchange rates compare factors favoring and limiting economic growth in developed and developing economies describe the relation between the longrun rate of stock market appreciation and the sustainable growth rate of the economy explain why potential GDP and its growth rate matter for equity and fixed income investors distinguish between capital deepening investment and technological progress and explain how each affects economic growth and labor productivity forecast potential GDP based on growth accounting relations explain how natural resources affect economic growth and evaluate the argument that limited availability of natural resources constrains economic growth or Accounting Questions? Go to passingscoreforum.com 8
4.15.g 4.15.h 4.15.i 4.15.j 4.15.k 4.15.l 4.16.a 4.16.b 4.16.c 4.16.d 4.16.e 4.16.f 4.16.g 4.16.h explain how demographics, immigration, and labor force participation affect the rate and sustainability of economic growth explain how investment in physical capital, human capital, and technological development affects economic growth compare classical growth theory, neoclassical growth theory, and endogenous growth theory explain and evaluate convergence hypotheses describe the economic rationale for governments to provide incentives to private investment in technology and knowledge describe the expected impact of removing trade barriers on capital investment and profits, employment and wages, and growth in the economies involved describe classifications of regulations and regulators describe uses of self-regulation in financial markets describe the economic rationale for regulatory intervention describe regulatory interdependencies and their effects describe tools of regulatory intervention in markets explain purposes in regulating commerce and financial markets describe anticompetitive behaviors targeted by antitrust laws globally and evaluate the antitrust risk associated with a given business strategy describe benefits and costs of regulation 4.13.g 4.13.h 4.13.i 4.13.j 4.13.k 4.13.l 4.14.a 4.14.b 4.14.c 4.14.d 4.14.e 4.14.f 4.14.g 4.14.h explain how demographics, immigration, and labor force participation affect the rate and sustainability of economic growth explain how investment in physical capital, human capital, and technological development affects economic growth compare classical growth theory, neoclassical growth theory, and endogenous growth theory explain and evaluate convergence hypotheses describe the economic rationale for governments to provide incentives to private investment in technology and knowledge describe the expected impact of removing trade barriers on capital investment and profits, employment and wages, and growth in the economies involved describe classifications of regulations and regulators describe uses of self-regulation in financial markets describe the economic rationale for regulatory intervention describe regulatory interdependencies and their effects describe tools of regulatory intervention in markets explain purposes in regulating commerce and financial markets describe anticompetitive behaviors targeted by antitrust laws globally and evaluate the antitrust risk associated with a given business strategy describe benefits and costs of regulation or Accounting Questions? Go to passingscoreforum.com 9
4.16.i 5.17.a 5.17.b 5.17.c 5.17.d 5.17.e 5.17.f 5.18.a 5.18.b 5.18.c 5.18.d evaluate how a specific regulation affects an industry, company, or security calculate and explain how inflation and deflation of inventory costs affects the financial statements and ratios of companies that use different inventory valuation methods explain LIFO reserve and LIFO liquidation and their effects on financial statements and ratios convert a company s reported financial statements from LIFO to FIFO for purposes of comparison describe the implications of valuing inventory at net realisable value for financial statements and ratios analyze and compare the financial statements and ratios of companies, including those that use different inventory valuation methods explain issues that analysts should consider when examining a company s inventory disclosures and other sources of information explain and evaluate how capitalising versus expensing costs in the period in which they are incurred affects financial statements and ratios explain and evaluate how the different depreciation methods for property, plant, and equipment affect financial statements and ratios explain and evaluate how impairment and revaluation of property, plant, and equipment, and intangible assets affect financial statements and ratios analyze and interpret financial statement disclosures regarding longlived assets 4.14.i 5.15.a 5.15.b 5.15.c 5.15.d 5.15.e 5.15.f 5.16.a 5.16.b 5.16.c 5.16.d evaluate how a specific regulation affects an industry, company, or security calculate and explain how inflation and deflation of inventory costs affect the financial statements and ratios of companies that use different inventory valuation methods explain LIFO reserve and LIFO liquidation and their effects on financial statements and ratios convert a company s reported financial statements from LIFO to FIFO for purposes of comparison describe the implications of valuing inventory at net realisable value for financial statements and ratios analyze and compare the financial statements and ratios of companies, including those that use different inventory valuation methods explain issues that analysts should consider when examining a company s inventory disclosures and other sources of information explain and evaluate how capitalising versus expensing costs in the period in which they are incurred affects financial statements and ratios explain and evaluate how the different depreciation methods for property, plant, and equipment affect financial statements and ratios explain and evaluate how impairment and revaluation of property, plant, and equipment, and intangible assets affect financial statements and ratios analyze and interpret financial statement disclosures regarding longlived assets or Accounting Questions? Go to passingscoreforum.com 10
5.18.e 5.18.f 6.19.a explain and evaluate how leasing assets instead of purchasing them affects financial statements and ratios explain and evaluate how finance leases and operating leases affect financial statements and ratios from the perspective of both the lessor and the lessee describe the classification, measurement, and disclosure under International Standards (IFRS) for 1) investments in financial assets, 2) investments in associates, 3) joint ventures, 4) business combinations, and 5) special purpose and variable interest entities 5.16.e 5.16.f 6.17.a explain and evaluate how leasing rather than purchasing assets affects financial statements and ratios explain and evaluate how finance leases and operating leases affect financial statements and ratios from the perspectives of both the lessor and the lessee describe the classification, measurement, and disclosure under International Standards (IFRS) for 1) investments in financial assets, 2) investments in associates, 3) joint ventures, 4) business combinations, and 5) special purpose and variable interest entities 6.19.b 6.19.c 6.20.a 6.20.b 6.20.c distinguish between IFRS and U.S. GAAP in the classification, measurement, and disclosure of investments in financial assets, investments in associates, joint ventures, business combinations, and special purpose and variable interest entities analyze how different methods used to account for intercorporate investments affect financial statements and ratios describe the types of post-employment benefit plans and implications for financial reports explain and calculate measures of a defined benefit pension obligation (i.e., present value of the defined benefit obligation and projected benefit obligation) and net pension liability (or asset) describe the components of a company s defined benefit pension costs 6.17.b 6.17.c 6.18.a 6.18.b 6.18.c distinguish between IFRS and U.S. GAAP in the classification, measurement, and disclosure of investments in financial assets, investments in associates, joint ventures, business combinations, and special purpose and variable interest entities analyze how different methods used to account for intercorporate investments affect financial statements and ratios describe the types of post-employment benefit plans and implications for financial reports explain and calculate measures of a defined benefit pension obligation (i.e., present value of the defined benefit obligation and projected benefit obligation) and net pension liability (or asset) describe the components of a company s defined benefit pension costs or Accounting Questions? Go to passingscoreforum.com 11
6.20.d 6.20.e 6.20.f 6.20.g 6.20.h 6.21.a 6.21.b 6.21.c 6.21.d 6.21.e explain and calculate the effect of a defined benefit plan s assumptions on the defined benefit obligation and periodic pension cost explain and calculate how adjusting for items of pension and other postemployment benefits that are reported in the notes to the financial statements affects financial statements and ratios interpret pension plan note disclosures including cash flow related information explain issues associated with accounting for share-based compensation explain how accounting for stock grants and stock options affects financial statements, and the importance of companies assumptions in valuing these grants and options distinguish among presentation currency, functional currency, and local currency describe foreign currency transaction exposure, including accounting for and disclosures about foreign currency transaction gains and losses analyze how changes in exchange rates affect the translated sales of the subsidiary and parent company compare the current rate method and the temporal method, evaluate how each affects the parent company s balance sheet and income statement, and determine which method is appropriate in various scenarios calculate the translation effects and evaluate the translation of a subsidiary s balance sheet and income statement into the parent company s presentation currency 6.18.d 6.18.e 6.18.f 6.18.g 6.18.h 6.19.a 6.19.b 6.19.c 6.19.d 6.19.e explain and calculate the effect of a defined benefit plan s assumptions on the defined benefit obligation and periodic pension cost explain and calculate how adjusting for items of pension and other postemployment benefits that are reported in the notes to the financial statements affects financial statements and ratios interpret pension plan note disclosures including cash flow related information explain issues associated with accounting for share-based compensation explain how accounting for stock grants and stock options affects financial statements, and the importance of companies assumptions in valuing these grants and options distinguish among presentation (reporting) currency, functional currency, and local currency describe foreign currency transaction exposure, including accounting for and disclosures about foreign currency transaction gains and losses analyze how changes in exchange rates affect the translated sales of the subsidiary and parent company compare the current rate method and the temporal method, evaluate how each affects the parent company s balance sheet and income statement, and determine which method is appropriate in various scenarios calculate the translation effects and evaluate the translation of a subsidiary s balance sheet and income statement into the parent company s presentation currency or Accounting Questions? Go to passingscoreforum.com 12
6.21.f 6.21.g 6.21.h 6.21.i analyze how the current rate method and the temporal method affect a company s financial statements and ratios analyze how alternative translation methods for subsidiaries operating in hyper-inflationary economies affect financial statement and ratios describe how multinational operations affect a company s effective tax rate explain how changes in the components of sales affect earnings sustainability 6.19.f 6.19.g 6.19.h 6.19.i analyze how the current rate method and the temporal method affect financial statements and ratios analyze how alternative translation methods for subsidiaries operating in hyper-inflationary economies affect financial statements and ratios describe how multinational operations affect a company s effective tax rate explain how changes in the components of sales affect earnings sustainability 6.21.j 7.22.a 7.23.f 7.22.b 7.22.c analyze how currency fluctuations potentially affect financial results, given a company s countries of operation distinguish among various definitions of earnings (e.g., EBITDA, operating earnings, net income, etc.) explain potential problems that affect the quality of financial reporting, including revenue recognition, expense recognition, balance sheet issues, and cash flow statement issues, and interpret warning signs of these potential problems explain how trends in cash flow from operations can be more reliable than trends in earnings describe the accounting treatment for derivatives being used to hedge exposure to changes in the value of assets and liabilities, exposure to variable cash flows, and foreign currency exposure of investments in foreign corporations 6.19.j 7.20.a 7.20.b analyze how currency fluctuations potentially affect financial results, given a company s countries of operation demonstrate the use of a conceptual framework for assessing the quality of a company s financial reports explain potential problems that affect the quality of financial reports or Accounting Questions? Go to passingscoreforum.com 13
7.23.a 7.23.b 7.23.c 7.23.e contrast cash-basis and accrual-basis accounting, and explain why accounting discretion exists in an accrual accounting system describe the relation between the level of accruals and the persistence of earnings and relative multiples that the cash and accrual components of earnings should rationally receive in valuation explain opportunities and motivations for management to intervene in the external financial reporting process and mechanisms that discipline such intervention explain mean reversion in earnings and how the accrual component of earnings affects the speed of mean reversion 7.20.c 7.20.d 7.20.e 7.20.f 7.20.g describe how to evaluate the quality of a company s financial reports evaluate the quality of a company s financial reports describe the concept of sustainable (persistent) earnings describe indicators of earnings quality explain mean reversion in earnings and how the accruals component of earnings affects the speed of mean reversion 7.23.d describe earnings quality and measures of earnings quality, and compare the earnings quality of peer companies 7.20.h 7.20.i 7.20.j 7.20.k 7.20.l 7.20.m evaluate the earnings quality of a company describe indicators of cash flow quality evaluate the cash flow quality of a company describe indicators of balance sheet quality evaluate the balance sheet quality of a company describe sources of information about risk or Accounting Questions? Go to passingscoreforum.com 14
7.24.a 7.24.b 7.24.c 7.24.d 7.24.e 8.25.a 8.25.b demonstrate the use of a framework for the analysis of financial statements, given a particular problem, question, or purpose (e.g., valuing equity based on comparables, critiquing a credit rating, obtaining a comprehensive picture of financial leverage, evaluating the perspectives given in management s discussion of financial results) identify financial reporting choices and biases that affect the quality and comparability of companies financial statements, and explain how such biases affect financial decisions evaluate the quality of a company s financial data, and recommend appropriate adjustments to improve quality and comparability with similar companies, including adjustments for differences in accounting standards, methods, and assumptions evaluate how a given change in accounting standards, methods, or assumptions affects financial statements and ratios analyze and interpret how balance sheet modifications, earnings normalization, and cash flow statement related modifications affect a company s financial statements, financial ratios, and overall financial condition calculate the yearly cash flows of expansion and replacement capital projects, and evaluate how the choice of depreciation method affects those cash flows explain the effects of inflation on capital budgeting analysis 7.21.a 7.21.b 7.21.c 7.21.d 7.21.e 8.22.a 8.22.b demonstrate the use of a framework for the analysis of financial statements, given a particular problem, question, or purpose (e.g., valuing equity based on comparables, critiquing a credit rating, obtaining a comprehensive picture of financial leverage, evaluating the perspectives given in management s discussion of financial results) identify financial reporting choices and biases that affect the quality and comparability of companies financial statements, and explain how such biases may affect financial decisions evaluate the quality of a company s financial data, and recommend appropriate adjustments to improve quality and comparability with similar companies, including adjustments for differences in accounting standards, methods, and assumptions evaluate how a given change in accounting standards, methods, or assumptions affects financial statements and ratios analyze and interpret how balance sheet modifications, earnings normalization, and cash flow statement related modifications affect a company s financial statements, financial ratios, and overall financial condition calculate the yearly cash flows of expansion and replacement capital projects, and evaluate how the choice of depreciation method affects those cash flows explain how inflation affects capital budgeting analysis or Accounting Questions? Go to passingscoreforum.com 15
8.25.c 8.25.d 8.25.e 8.25.f 8.25.g 8.25.h 8.25.i 8.26.a 8.26.b 8.26.c evaluate capital projects and determine the optimal capital project in situations of 1) mutually exclusive projects with unequal lives, using either the least common multiple of lives approach or the equivalent annual annuity approach, and 2) capital rationing explain how sensitivity analysis, scenario analysis, and Monte Carlo simulation can be used to assess the stand-alone risk of a capital project explain and calculate the discount rate, based on market risk methods, to use in valuing a capital project describe types of real options and evaluate a capital project using real options describe common capital budgeting pitfalls calculate and interpret accounting income and economic income in the context of capital budgeting distinguish among the economic profit, residual income, and claims valuation models for capital budgeting and evaluate a capital project using each explain the Modigliani Miller propositions regarding capital structure, including the effects of leverage, taxes, financial distress, agency costs, and asymmetric information on a company s cost of equity, cost of capital, and optimal capital structure describe the target capital structure and explain why a company s actual capital structure may fluctuate around its target describe the role of debt ratings in capital structure policy 8.22.c 8.22.d 8.22.e 8.22.f 8.22.g 8.22.h 8.22.i 8.23.a 8.23.b 8.23.c evaluate capital projects and determine the optimal capital project in situations of 1) mutually exclusive projects with unequal lives, using either the least common multiple of lives approach or the equivalent annual annuity approach, and 2) capital rationing explain how sensitivity analysis, scenario analysis, and Monte Carlo simulation can be used to assess the stand-alone risk of a capital project explain and calculate the discount rate, based on market risk methods, to use in valuing a capital project describe types of real options and evaluate a capital project using real options describe common capital budgeting pitfalls calculate and interpret accounting income and economic income in the context of capital budgeting distinguish among the economic profit, residual income, and claims valuation models for capital budgeting and evaluate a capital project using each explain the Modigliani Miller propositions regarding capital structure, including the effects of leverage, taxes, financial distress, agency costs, and asymmetric information on a company s cost of equity, cost of capital, and optimal capital structure describe target capital structure and explain why a company s actual capital structure may fluctuate around its target describe the role of debt ratings in capital structure policy or Accounting Questions? Go to passingscoreforum.com 16
8.26.d 8.26.e 8.27.a 8.27.b 8.27.c 8.27.d 8.27.e 8.27.f 8.27.g 8.27.h 8.27.i 8.27.j explain factors an analyst should consider in evaluating the effect of capital structure policy on valuation describe international differences in the use of financial leverage, factors that explain these differences, and implications of these differences for investment analysis compare theories of dividend policy, and explain implications of each for share value given a description of a corporate dividend action describe types of information (signals) that dividend initiations, increases, decreases, and omissions may convey explain how clientele effects and agency issues may affect a company s payout policy explain factors that affect dividend policy calculate and interpret the effective tax rate on a given currency unit of corporate earnings under double taxation, dividend imputation, and splitrate tax systems compare stable dividend, constant dividend payout ratio, and residual dividend payout policies, and calculate the dividend under each policy explain the choice between paying cash dividends and repurchasing shares describe broad trends in corporate dividend policies calculate and interpret dividend coverage ratios based on 1) net income and 2) free cash flow identify characteristics of companies that may not be able to sustain their cash dividend 8.23.d 8.23.e 8.24.a 8.24.b 8.24.c 8.24.d 8.24.e 8.24.f 8.24.g 8.24.h 8.24.i 8.24.j explain factors an analyst should consider in evaluating the effect of capital structure policy on valuation describe international differences in the use of financial leverage, factors that explain these differences, and implications of these differences for investment analysis compare theories of dividend policy, and explain implications of each for share value given a description of a corporate dividend action describe types of information (signals) that dividend initiations, increases, decreases, and omissions may convey explain how clientele effects and agency issues may affect a company s payout policy explain factors that affect dividend policy calculate and interpret the effective tax rate on a given currency unit of corporate earnings under double taxation, dividend imputation, and splitrate tax systems compare stable dividend, constant dividend payout ratio, and residual dividend payout policies, and calculate the dividend under each policy explain the choice between paying cash dividends and repurchasing shares describe broad trends in corporate dividend policies calculate and interpret dividend coverage ratios based on 1) net income and 2) free cash flow identify characteristics of companies that may not be able to sustain their cash dividend or Accounting Questions? Go to passingscoreforum.com 17
9.28.a 9.28.b 9.28.c 9.28.d 9.28.e 9.28.f describe objectives and core attributes of an effective corporate governance system, and evaluate whether a company s corporate governance has those attributes compare major business forms, and describe the conflicts of interest associated with each explain conflicts that arise in agency relationships, including manager shareholder conflicts and director shareholder conflicts describe responsibilities of the board of directors, and explain qualifications and core competencies that an investment analyst should look for in the board of directors explain effective corporate governance practice as it relates to the board of directors, and evaluate strengths and weaknesses of a company s corporate governance practice describe elements of a company s statement of corporate governance policies that investment analysts should assess 9.25.a 9.25.b 9.25.c 9.25.d 9.26.a 9.26.b 9.26.c 9.26.d 9.26.e 9.26.f compare interests of key stakeholder groups and explain the purpose of a stake-holder impact analysis discuss problems that can arise in principal agent relationships and mechanisms that may mitigate such problems discuss roots of unethical behavior and how managers might ensure that ethical issues are considered in business decision making compare the Friedman doctrine, Utilitarianism, Kantian Ethics, and Rights and Justice Theories as approaches to ethical decision making describe objectives and core attributes of an effective corporate governance system, and evaluate whether a company s corporate governance has those attributes compare major business forms, and describe the conflicts of interest associated with each explain conflicts that arise in agency relationships, including manager shareholder conflicts and director shareholder conflicts describe responsibilities of the board of directors, and explain qualifications and core competencies that an investment analyst should look for in the board of directors explain effective corporate governance practice as it relates to the board of directors, and evaluate strengths and weaknesses of a company s corporate governance practice describe elements of a company s statement of corporate governance policies that investment analysts should assess or Accounting Questions? Go to passingscoreforum.com 18
9.28.g 9.28.h 9.29.a 9.29.b 9.29.c 9.29.d 9.29.e 9.29.f 9.29.g 9.29.h 9.29.i 9.29.j describe environmental, social, and governance risk exposures explain the valuation implications of corporate governance classify merger and acquisition (M&A) activities based on forms of integration and relatedness of business activities explain common motivations behind M&A activity explain bootstrapping of earnings per share (EPS) and calculate a company s postmerger EPS explain, based on industry life cycles, the relation between merger motivations and types of mergers contrast merger transaction characteristics by form of acquisition, method of payment, and attitude of target management distinguish among pre-offer and postoffer takeover defense mechanisms calculate and interpret the Herfindahl Hirschman Index, and evaluate the like-lihood of an antitrust challenge for a given business combination compare the discounted cash flow, comparable company, and comparable transaction analyses for valuing a target company, including the advantages and disadvantages of each calculate free cash flows for a target company, and estimate the company s intrinsic value based on discounted cash flow analysis estimate the value of a target company using comparable company and comparable transaction analyses 9.26.g 9.26.h 9.27.a 9.27.b 9.27.c 9.27.d 9.27.e 9.27.f 9.27.g 9.27.h 9.27.i 9.27.j describe environmental, social, and governance risk exposures explain the valuation implications of corporate governance classify merger and acquisition (M&A) activities based on forms of integration and relatedness of business activities explain common motivations behind M&A activity explain bootstrapping of earnings per share (EPS) and calculate a company s postmerger EPS explain, based on industry life cycles, the relation between merger motivations and types of mergers contrast merger transaction characteristics by form of acquisition, method of payment, and attitude of target management distinguish among pre-offer and postoffer takeover defense mechanisms calculate and interpret the Herfindahl Hirschman Index, and evaluate the like-lihood of an antitrust challenge for a given business combination compare the discounted cash flow, comparable company, and comparable transaction analyses for valuing a target company, including the advantages and disadvantages of each calculate free cash flows for a target company, and estimate the company s intrinsic value based on discounted cash flow analysis estimate the value of a target company using comparable company and comparable transaction analyses or Accounting Questions? Go to passingscoreforum.com 19
9.29.k 9.29.l 9.29.m 9.29.n 9.29.o 10.30.a 10.30.b 10.30.c 10.30.d 10.30.e 10.30.f 10.30.g 10.30.h evaluate a takeover bid, and calculate the estimated post-acquisition value of an acquirer and the gains accrued to the target shareholders versus the acquirer shareholders explain how price and payment method affect the distribution of risks and benefits in M&A transactions describe characteristics of M&A transactions that create value distinguish among equity carve-outs, spin-offs, split-offs, and liquidation explain common reasons for restructuring define valuation and intrinsic value, and explain sources of perceived mispricing explain the going concern assumption, and contrast a going concern value to a liquidation value describe definitions of value, and justify which definition of value is most relevant to public company valuation describe applications of equity valuation describe questions that should be addressed in conducting an industry and competitive analysis contrast absolute and relative valuation models, and describe examples of each type of model describe sum-of-the-parts valuation, and explain a conglomerate discount explain broad criteria for choosing an appropriate approach for valuing a given company 9.27.k 9.27.l 9.27.m 9.27.n 9.27.o 10.28.a 10.28.b 10.28.c 10.28.d 10.28.e 10.28.f 10.28.g 10.28.h evaluate a takeover bid, and calculate the estimated post-acquisition value of an acquirer and the gains accrued to the target shareholders versus the acquirer shareholders explain how price and payment method affect the distribution of risks and benefits in M&A transactions describe characteristics of M&A transactions that create value distinguish among equity carve-outs, spin-offs, split-offs, and liquidation explain common reasons for restructuring define valuation and intrinsic value, and explain sources of perceived mispricing explain the going concern assumption, and contrast a going concern value to a liquidation value describe definitions of value, and justify which definition of value is most relevant to public company valuation describe applications of equity valuation describe questions that should be addressed in conducting an industry and competitive analysis contrast absolute and relative valuation models, and describe examples of each type of model describe sum-of-the-parts valuation and conglomerate discounts explain broad criteria for choosing an appropriate approach for valuing a given company or Accounting Questions? Go to passingscoreforum.com 20