Wiley CIAexcel Exam Review 2014: Part 3, Internal Audit Knowledge Elements

DOMAIN 7

Financial Management (13–23%)

7.1 Financial Accounting and Finance

7.2 Managerial Accounting

7.3 Sample Practice Questions

7.1 Financial Accounting and Finance

Various topics are included in this section, including those listed next.

• Basic concepts
• Intermediate concepts
• Advanced concepts
• Financial statement analysis
• Types of debt and equity
• Financial instruments
• Cash management
• Valuation models
• Capital budgeting methods and decisions
• Cost of capital evaluations
• Taxation schemes
• Mergers, acquisitions, and divestitures

(a) Basic Concepts and Underlying Principles of Financial Accounting

Financial accounting (FA) is the language of business. All business transactions eventually end up in financial statements. Accounting principles are used to classify, record, post, summarize, and report the business transactions among various parties involved. Accountants apply their professional standards to analyze business transactions, prepare estimations, and report business events. The business transactions data accumulated in the chart of accounts are used to prepare the financial statements of an organization. Accounting principles and qualities of accounting information, the accounting cycle, different formats of financial statements, and account analysis are discussed in this section.

(i) Accounting Principles and Qualities of Accounting Information

(A) Accounting Principles

If company management could record and report financial data as it saw fit, comparisons among companies ...