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Advanced Financial Reporting And Analysis
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Subject
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business-skills
Instructions:
Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.
This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Lost sales from stock outs
Asset Revaluation: IFRS
Sources of Differences: Permanent
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Forecasting Financial Performance: Top Down Approach...
2. Increase in an asset: deduct (use of cash) - Increase in a liability: add (source of cash) - Decrease in an asset: add (source of cash) - Decrease in a liability: deduct (use of cash)
Types of accounting changes: accounting principle
CFO - Direct/Indirect method
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Defined Contribution Plans
3. Beginning Inv. (BI) + Purchases (P) = Available for Sale - Available for sale - COGS = Ending Inventory (EI)
Financial Ration based on B/S: Liquidity Ratios
Form 8-K...
Ending Inventory =
Roles of financial reporting & analysis include...
4. Is required under IFRS but not under GAAP
Measures of Operating Performance - Efficiency Ratios...
Market Value (GAAP)...
Intercorporate Investment: 20% - 50% votes...
Footnote disclosure of Reconciliation of opening and closing carrying values...
5. Exchange of goods or services between two parties (no cash) IASB: Revenue = FMV of similar non-barter transaction with unrelated parties FASB: Revenue = FMV only if the company has received cash payments for such services in the past
Footnote Finance Liability Disclosure
Cash Flow From Investing (USA) (Assets)
Barter (IASB & FASB)
Cash Flow From Operations (CFO) - FASB
6. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
Cash Flow From Operations (CFO) - FASB
Measures of Operating Performance - Efficiency Ratios...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Fraud Triangle - 2) Opportunity
7. Unlisted instruments - Held-to-maturity investments - Loans - Receivables
Financial Assets: US GAAP/Amortized at Cost
Financial Assets: US GAAP/Fair Market Value
Gross Reporting of Revenue
Balance Sheet
8. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
# of days payable =
Impact on the B/S of a Zero Coupon Bond...
The account format of B/S
Sources of Differences: Permanent
9. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Defined Contribution Plans
Footnote disclosure of Reconciliation of opening and closing carrying values...
To investigate the stability of that structure - Kilgore would be best served by looking at...
IFRS/US GAAP Frameworks: underlying assumptions...
10. CFO = NI - means high quality of earnings but may be affect by the stage of business cycle and firm's life cycle - CFO > NI - means premature recognition of revenue or delayed recognition of expenses.
Auditor/Audit Opinion
Common Size Statement
CFO Analysis...
Impact on the Cash Flow of a Zero Coupon Bond...
11. 1) Character: Mgmt reputation and history of repayment 2) Collateral: ability to pledge specific collateral reduces lender risk 3) Capacity: ability to replay debt. requires LT view of firms prospect.
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12. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower
From creditor POV: Int. Coverage;
Cash Flow: Logic (A = L + E)
FIFO results in: (assuming inflationary period)
Taxation Disclosure Requirements
13. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same
Effects of Lease Classification on F/S - Operating Lease
Gain/(loss) on bond early retirement: (derecognition of debt)
Cash Flow From Operations (CFO) - FASB
Diluted EPS
14. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Impact on the Cash Flow of a Zero Coupon Bond...
Measures of Operating Performance - Efficiency Ratios...
Antidilutive Securities
Cash Flow From Operations (CFO) - FASB
15. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate
Sarbanes-Oxley Management Report...
Fraud Triangle - 2) Opportunity
Creative Cash Flows Accounting: Motivation
Sources of Differences: Permanent
16. Capital structure that contains NO potentially dillutive securities - (contains only c/s - nonconvertible debt - and nonconvertible pref. stock)
Tax Loss Carryforward...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Simple capital structure
17. Required by IFRS - Permited by US GAAP
3 C's for Credit Analysis...
Motivation to Under-report Earnings
B/S - Long-lived assets
Component depreciation;
18. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Financial Ratios based on B/S: Solvency (Coverage)
Sales Basis Revenue Recognitions
Effects of Lease Classification on F/S - Operating Lease
Sources of Differences betweent F/S & T/
19. Income subject to tax as per Tax Return
Taxable Income
Installment Method...
Return on Equity (ROE)...
Units of Production Method
20. Depreciation exp = (cost - accum depre)/useful life x 2 - Does NOT use residual value but depreciation stops when residual value has been reached - reduce EBIT - NI - Assets - Equity and decrease ROA & ROE
IFRS: Required F/S
Double-decline balance (DDB)
Income Tax Paid...
Financial Assets: US GAAP/Fair Market Value
21. Assets - liabilities - and equity are presented in a single column.
Form DEF-14A...
Credit Analysis: Ratios
CFO - Direct/Indirect method
The report format of B/S
22. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher
Ratios that directly affect choice of Inventory Account...
Financial Lease Reporting
Inventory mangement: Low T/O (High DOH)...
Impact on the Cash Flow of a Premium Bond...
23. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is higher and CFF is lower
Impact on the Cash Flow of a Discount Bond...
Reasons to Lease...
Financial Assets: US GAAP/Amortized at Cost
Complex Capital Structure
24. Nature of liability; Maturity dates; Stated and effective int. rates; Call and conversion features; covenants; security pledged as collateral; Amount of Debt maturity in each of the next 5 years; Fair value of o/s instrutments
Debt covenants
Market Value (GAAP)...
Footnote Finance Liability Disclosure
Effective Tax Rate
25. 1) B/S asset increased to FMV 2) Increase above original cost to equity via revaluation surplus account (comprehensive Income)
Valuation allowance
Revaluation above historic cost...
Free Cash Flow to the Firm - FCFF
Types of accounting changes: accounting principle
26. Inventory TO = COGS / Avg. Inventory - LIFO = Higher - FIFO = Lower - DOH = 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.) - LIFO = lower days - FIFO = higher days - Gross Profit margin = Gross profit/ revenues - LIFO = lower - FIFO = higher
Ratios that directly affect choice of Inventory Account...
Effects of Lease Classification on F/S - Finance Lease
Market Value (GAAP)...
IFRS/US GAAP Frameworks: Recognition of Elements...
27. 1) is a contra asset account used to reduce the value of a DTA - 2) it is used to reduce the asset when future taxable income is deemed to be insefficient to fully use the DTA.
IFRS/US GAAP Frameworks: Measurement of Elements...
Valuation allowance
Dilutive Securities
Characteristics of an effective framework
28. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
Stock options: Use treasury stock method
Funded Status US GAAP & IFRS
Impact on the Cash Flow of a Par Bond...
Effects of Lease Classification on F/S - Finance Lease
29. When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote - it also files the statement with the SEC as Form DEF-14A.
Analyst Treaments of DTL
Auditor/Audit Opinion
Taxation Analyst Adjustments...
Form DEF-14A...
30. Loss that could not be deducted on the tax return in current period but may be used to reduce taxable income and taxes payable in future (i.e. warranty)
Depreciation Methods...
Asset Capitalization
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Tax Loss Carryforward...
31. Stock options - Warrants - Convertible debt - Convertible preferred stock
Income Statement
Return on Assets ROA...
Financial Assets: US GAAP/Fair Market Value
Potentially Dillutive Securities
32. Income variability lower - Profitability early years (ROE - ROA & NI) is Higher - Profitability later years: lower - Total Cash Flows: Same - CFO: higher - CFI: Lower - Leverage ratios: D/E & D/A: lower - Opposite fore Expensing
Convergence IFRS/US GAAP...
Financial Implications of Capitalizing...
FIFO ending inventory =
Vertical Common Size Statements...
33. Interest Expense = Amortization
Financial Lease Reporting
Asset Revaluation: IFRS
Impact on the B/S of a Zero Coupon Bond...
Operating vs. Non-operating Income
34. GAAP: more quantitative rules - IFRS: more qualitative approach based on whether the risks and reward of the asset have tranferred.
Finance (capital) Lease criteria GAAP vs. IFRS
Inv. Valuation reporting Inventory ABOVE costs...
Extraordinary Items: Unusual AND Infrequent items...
B/S - Long-term Liabilities
35. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up
B/S - investments
Calculate dividends declared...
Steps of F/S Analysis
Financial Ratios based on B/S: Solvency ratio
36. Increase in an asset: deduct (use of cash) - Increase in a liability: add (source of cash) - Decrease in an asset: add (source of cash) - Decrease in a liability: deduct (use of cash)
IFRS Revenue Recognition
Unusual OR Infrequent items...
Add/ Sub changes to related b/s operating accounts
Market Value (GAAP)...
37. 1) Meet CFO (strategy; industry overview - accounting policy) 2) Tour major facilities 3) Vote on analyst recommendations (bus.& fin. risk) 4) Monitor publicly distributed ratings
Effects of Lease Classification on Ratios - Finance Lease
Credit Rating Process...
Impact on the Cash Flow of a Par Bond...
Units of Production Method
38. CFO: no impact - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower (b/c no impact) and CFF is higher
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Impairments recognition (GAAP)
Impact on the Cash Flow of a Zero Coupon Bond...
Return on Assets ROA...
39. Under GAAP 1) Purchased patentes - copyrights - franchises - licenses - brands - and trademarks 2) Direct response advertising 3) Goodwill arising from transactions - (Proceeds - FMV net assets required = goodwill) 4) Software development costs once
IFRS/US GAAP Frameworks: objective of F/S
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
4 General Categories for Creditworthiness/Capacity...
Capitalized Intangibles...
40. + Service Costs (recurring costs (actual)) - + Interest Costs (recurring costs (actual)) - - Expected return on plan assets (smoothed event) - +/- Amort of (gains) and losses (smoothed event) - +/- Amort of prior service costs* (smoothed event) - +/-
Barter (IASB & FASB)
Net Periodic Benefit Costs
IFRS: Required F/S
Screening for Potential Equity Investment: Criteria
41. 1) Stretching A/P (increase in # days in payable) = 365/(AP T/O) = 365/(purchases/ Avg. AP)) 2) Financing payables (allows to great AP as CFF) 3) Securitizing A/are: (allows to recognize gains in I/S) 4) Income Tax Benefit from stock options 5) Buyba
Barriers to a single framework...
Impact on the B/S of a Discount Bond...
IFRS Revenue Recognition For Service
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
42. 1) held-to-maturity: @ amortized cost (i.e Bonds) 2) trading: @ fair value through P&L @ fair mkt value - unrealized g/(l) are recognized on the I/S. 3) available-for-sale: @ fair mkt value - unrealized g/(l) are NOT recognized on the I/S - instead r
LIFO is appropriate
Activity Based Restrictions
B/S - short-term investments
Market Value (GAAP)...
43. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Sources of Differences betweent F/S & T/
Calculate dividends declared...
Intercorporate Investment: 20% - 50% votes...
Inventory Valuatoin (LCM)
44. 1) Capitalize interst during construction period when building its own operating facility; 2) Interest must actually be paid by the firm; 3) Specific and general debt interest is capitalized
Disclosure for each segment...
Capitalization of Interest...
Financial Lease Reporting
B/S - Long-lived assets PP&E
45. Slow moving or obsolete inventory
Inventory mangement: Low T/O (High DOH)...
Ending Inventory =
Cash Conversion Cycle =
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
46. 1) Development of high quality - transparent and enforceable global standards; 2) Promote application of standards; 3) Take into account special needs (small & med entities & emerging markets); 4) Convergence of nat'l and int'l standards
IFRS/US GAAP Frameworks: objective of F/S
IASB - Goals
Discontinued Operations...
Creative Cash Flows Accounting: Motivation
47. CV of Op. Inc = std dev. EBIT/ Mean EBIT - CV of Revenue: std. dev Rev/ mean Rev. - Operating Leverage = %chg in EBIT/ %chg in Sales
4 General Categories for Creditworthiness/Capacity...
Operating Risk Ratios...
Disclosure for each segment...
Sources of Differences: Temporary
48. Research = Expensed Development may be capitalized when the following critera is met: (ie if in the Development stage and NOT research stage) 1) process is clearly identified 2) Cost can be clearly idenfified 3) Technical feasibility established 4) M
FIFO after-tax profit =
Intangibles under IFRS...
IFRS Revenue Recognition For Service
Form DEF-14A...
49. 1) Purchase cost; 2) conversion costs; 3) Allocation of fixed production OH based on normal capacity levels; 4) Other costs necessary to bring the inventory to its present location and condition (freight costs & installation) - Exclude: Admin OH - S
Cost included in Inventory on b/s...
Types of accounting changes: accounting principle
From creditor POV: Int. Coverage;
What is the economic substance of financial (capital) lease?
50. Profit is recognized only when it exceeds estimated total cost.
Financial Assets: US GAAP/Fair Market Value
Cost recovery method...
Potentially Dillutive Securities
Revaluation above historic cost...
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