The Institute of Management Accountants (IMA) has sponsored a new certification ideal for undergraduate accounting students. The Financial and Managerial Accounting Associate (FMAA) certificate is a great way to get a head start in the financial field while you are attending school. 

Studying for the certificate is also a great way to learn and expand your knowledge of financial information. The certificate is affordable and feasible for accounting, finance, and business majors and requirements are entry level so you can do this while you work on your degree.

According to the IMA, this certificate adds value to your employment potential, builds your skillset, provides a step in your career advancement, and provides a way to improve your competitive advantage. This exam may also be a good way to begin studying for the more advanced certifications at a very reasonable cost.  

Information about the certification process, costs, and a sample questionnaire, and registration can be found at IMA FMMA Certificate

A comparison of IMA Certificate Programs can be located at IMA Certificate Programs

Sylvia DeAngelo, Ph.D.

Accounting Department

sdeangelo@purdueglobal.edu

In previous articles, we looked at how data analytics techniques can be used in investigative accounting. Successful investigative accountants need to be experts in analyzing financial statements! PG has both an undergraduate (MT482, Financial Statement Analysis) and a graduate (GF530, Financial Statement Analysis) course to help you in developing this skill! Not only is this a valuable skill for investigative accountants, but the ability to evaluate a set of financial statements is also a crucial skill for auditors and for those in the corporate finance field.

Analysis of financial statements using ratio analysis (measuring the relationship between two or more financial statement amounts) can yield valuable information for investigative accountants. Assessment of financial trends, comparison of financial information with competitors and the industry, and assessment of financial risks (including the risk of material misstatement) are just some of insights that ratio analysis can provide to the analyst. The following are some common ratios used in financial statement analysis.

Liquidity ratios, such as the current ratio, indicate a company’s ability to pay their short-term debts as they become due. Liquidity ratios generally focus on the relationship between short-term or liquid assets and short-term liabilities.

Leverage, or solvency, ratios focus on a company’s ability to meet their interest and debt obligations on a long-term basis. The debt ratio and debt to equity ratio are heavily considered by creditors and lenders, and debt-to-equity requirements are often contained in borrowing covenants. This creates pressure for management to maintain the requirement.  

Efficiency ratios, such as accounts receivable turnover and inventory turnover, provide insights into management’s use of key resources. Use of estimates in accounting increases the risk of certain accounts. For example, if management overestimates bad debts, accounts receivable turnover will appear to increase.

Profitability ratios focus on a company’s ability to generate earnings based on their use of assets and investments. One example is the profit margin ratio (net income divided by net sales). This ratio should be consistent from one year to the next. A fluctuating profit margin may uncover fraudulent accounting that shifted costs from one period to another. If fraud is committed, net income may be artificially overstated, resulting in a profit margin ratio that is abnormally high compared to other periods.

Results of each individual ratio can indicate information about the financial condition of the company and the possibility of fraud. However, for the most effective analysis, the accountant should consider the total results, and how accounts are interrelated. Many accounts are used in more than one ratio formula, and examination of the total picture of the analysis could reveal further areas to investigate. For example, if selling expenses have declined, but sales and accounts receivable have increased, this could point the investigative accountant toward the possibility of fictitious sales.

Rarely will financial statement analysis prove that fraud occurred; rather, it identifies transactions or activities that have the characteristics of fraud, so that accountants can investigate further. Many times, the discrepancies, or anomalies, can be explained by changes in company operations. But many fraud schemes are discovered because the ratio results do not make sense.  If the investigation ultimately leads to fraud discovery, then financial statement analysis has proved its worth!

Cynthia Waddell, PhD, CPA, CFE

cwaddell@purdueglobal.edu