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Test your basic knowledge |
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. Taxes payable + chg deferred Tax as per Financial Report
Dilutive Securities
Activity Based Restrictions
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Taxation: Income Tax Expense
2. 1) Account format (A on left and L & E on right) 2) Report format ( A - L - E presented in one column) 3) Classified B/S (ordered)
Types of accounting changes...
Debt covenants
Taxation Analyst Adjustments...
Balance Sheet - formats
3. Small investment for div/capital gains purpose - If Secondary market: Held-to-maturity: Debt securities co intend to hold to maturity; Carried at Amortized cost. Available-for-sale: Sold to satisfy Debt/Equity Needs; Currrent or non-current; B/S @ MV
Fraud Triangle
Intercorporate Investment: < 20% votes...
Operating Risk Ratios...
IFRS/US GAAP Frameworks: objective of F/S
4. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
CFO - Direct/Indirect method
IFRS Revenue Recognition For Service
Trade-Offs Qualitative Characteristics of IFRS
Ending Inventory =
5. (net income - preferred dividends)/weighted average of common shares outstanding - only income from continuing operations is considered
Vertical Common Size Statements...
BASIC EPS
Sources of Differences: Temporary
Fraud Triangle - 2) Opportunity
6. IAS 39 Marketable securities - IAS 2 Inventories (LIFO prohibited) - IAS 16 PP&E - JV (IFRS: proportional consolidation) - IAS 38 Intangibles - IAS 18 & 11 Contruction Contracts - Extraordinary Items: Prohibited in IFRS - Cash Flow Statement
Financial Ratios based on B/S: Solvency ratio
Credit Analysis: Ratios
Convergence IFRS/US GAAP...
Bond Issuance Cost under GAAP/IFRS
7. Income subject to tax as per Tax Return
ROE interpretation: if ROE is low...
Lessor Accounting Capital Lease: Sales-Type Lease
Calculate dividends declared...
Taxable Income
8. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
B/S - Long-lived assets PP&E
Defined Contribution Plans
Motivation to Understate Assets/Overstate Liabilities
Taxation Analyst Adjustments...
9. Asset is impaired if carrying value > recoverable amount - One-step process 1) Compare carrying value to: recoverable amount = the greater of the two. a) Fair value - selling costs b) Value in use = (PV of future cash flow from cont. use) - Loss reve
The report format of B/S
Double-decline balance (DDB)
Impairments recognition (IFRS)
Valuation Allowance...
10. For inventory that does not deteriorate with age.
LIFO is appropriate
IASB - Goals
Motivation to Under-report Earnings
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
11. GAAP: more quantitative rules - IFRS: more qualitative approach based on whether the risks and reward of the asset have tranferred.
Financial Lease Reporting
Finance (capital) Lease criteria GAAP vs. IFRS
Ending Inventory =
Effective Tax Rate
12. Stock options - Warrants - Convertible debt - Convertible preferred stock
Creative Cash Flows Accounting: Technique
Potentially Dillutive Securities
Motivation to Overstate Assets/Understate Liabilities
Financial Ratios based on B/S: Solvency (Coverage)
13. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
Impact on the B/S of a Premium Bond...
Calculate dividends declared...
Impact on the Cash Flow of a Par Bond...
Tax base on a liability
14. All other liabilities (e.g. bonds - notes payables - leases)
Financial Liability: US GAAP/Amortized at Cost
IFRS Revenue Recognition For Service
Potentially Dillutive Securities
Financial Ratio based on I/S...
15. IFRS: Funded status is NOT on B/S Asset/Liability - Result in a b/s that does NOT represent econ reality - GAAP: Funded status = B/S Asset/Liability -Both disclose components of DBO - plan assets - expenses - and assumptions used to calculate pensio
Operating vs. Non-operating Income
Fraud Triangle
Funded Status US GAAP & IFRS
Barter (IASB & FASB)
16. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
CFO Analysis...
Stock options: Use treasury stock method
The best indicator of overstating its profits is...
Cash Flow From Operations (CFO) - FASB
17. Interest Expense = Amortization
Tax base on a liability
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Analysis: Market Value of Debt
Impact on the B/S of a Zero Coupon Bond...
18. 1) Intention to hold >1 year (e.g. debt or equity) valued @ cost or mkt value 2) Equity accounted investments
Units of Production Method
B/S - investments
Gross Reporting of Revenue
Defined Benefit Plans
19. Beginning Inv. (BI) + Purchases (P) = Available for Sale - Available for sale - COGS = Ending Inventory (EI)
Analysis: Market Value of Debt
Ending Inventory =
IFRS Revenue Recognition For Service
Balance Sheet
20. 365/(AP T/O) = 365/(purchases/ Avg. AP)
# of days payable =
Taxation Disclosure Requirements
Return on Assets ROA...
CFO - Direct method
21. Reported ABOVE the line 1) G/(L) from disposal of a business segment 2) G/(L) from sale of investment in subsidiary 3) Provisions for environmental remediation - impairments - write-offs - write-downs - restructuring.4) Integration expense for recent
Financial Ratios based on B/S: Solvency ratio
Comprehensive income...
Unusual OR Infrequent items...
Finance (capital) Lease criteria (under US GAAP)
22. 1) Revenue (external & internal) 2) Segment results (operating profit) 3) Carrying amount of segment asset4 4) Segment liabilities (IFRS) 5) Cost of PPE and intangibles acquired 6) Depreciation and Amort expenses 7) Other non-cash expense 8) Share of
Disclosure for each segment...
Impact on the B/S of a Par Bond...
Screening for Potential Equity Investment: Criteria
Intercorporate Investment: > 50% votes...
23. 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
Activity Ratios
Footnote Finance Liability Disclosure
Income Statement
Credit Rating Process...
24. = LIFO ending inventory + LIFO reserve FIFO after-tax profit
FIFO ending inventory =
Impact on the B/S of a Par Bond...
Footnote disclosure of Reconciliation of opening and closing carrying values...
Financial Assets: US GAAP/Fair Market Value
25. 1) Lack physical form (patent - copyrights etc; 2) Good will is an ex. of an unidentifiable intangible asset - not amortized but subject to annual impairment reviews; 3) Identifiable intangibles are amortized.(eliminate goodwill from ratio analysis)
Income Tax Paid...
Intangible Assets
Barter (IASB & FASB)
B/S - Long-term Liabilities
26. 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.)
Footnote disclosure of Reconciliation of opening and closing carrying values...
days of inv. on hand =
Impairments recognition (IFRS)
IFRS/US GAAP Frameworks: Measurement of Elements...
27. 1) Nature of industry/entity operations: 3rd party transactions; Power of customer/supplier; Acct est subjective; Unusual transactions; International operations; International operations; Operations in tax havens. 2) Opportunity complex/unstable org.
Comprehensive income...
Financial Ratio based on I/S...
Fraud Triangle - 2) Opportunity
Tax base on a liability
28. 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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29. You.S. GAAP
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Credit Rating Process...
CFO Analysis...
Inv. Valuation reporting Inventory ABOVE costs...
30. Contributed capital = c/s @ par plus add'l paid-in capital - Treasury stock (reaquired by frim but not yet retired) - are/E = Accum' NI less dividends - Minority (non-controlling) interest - Comprehensive income items: all chg in SOE not in I/S or fr
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31. Assess liquidity - solvency and financial flexibiliy
FIFO results in: (assuming inflationary period)
Impact on the Cash Flow of a Premium Bond...
IOSCO
Statement of Cash Flow - relevance...
32. 1) Results of operations and discussions of trend; 2) Capital resources - liquidity - and cash flow trends; 3) General business overview based on known trends; 4) Effects of trends - events - and uncertainties; 5) Discontinued operations - extraordin
Bond Issuance Cost under GAAP/IFRS
CFO - Direct/Indirect method
Cash Flow From Financing (USA) (Source of Cash)
MD&A contains...
33. Higher share price - Lower borrowing cost - Higher incentive compensation
Auditor/Audit Opinion
Creative Cash Flows Accounting: Motivation
Return on Equity (ROE)...
Valuation allowance
34. 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
Steps of F/S Analysis
Expensed Intangibles...
Auditor/Audit Opinion
Credit Rating Process...
35. 1) Start with NI 2) Sub Gains or add losses from financing or investing CFs 3) Add non-cash charges (depr't & amort'z) & sub all non cash revenue 4) Add/ Sub changes to related b/s operating accounts:
Cash Flow From Operations (CFO) - IFRS
CFO - Indirect method steps...
Net Periodic Benefit Costs
Vertical Common Size Statements...
36. Actual cash outflow for taxes paid during current period
Income Tax Paid...
Statement of Cash Flow - relevance...
CFO - Direct/Indirect method
Impact on the B/S of a Discount Bond...
37. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
BASIC EPS
Cash Flow From Operations (CFO) - IFRS
Add/ Sub changes to related b/s operating accounts
Antidilutive Securities
38. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
Deferred Tax Liability: (DTL)
DTA/DTL: Effect on Net Income when Tax Rate decreases...
B/S - Long-lived assets
4 General Categories for Creditworthiness/Capacity...
39. + 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) - +/-
Financial Liability: US GAAP/Amortized at Cost
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Net Periodic Benefit Costs
Sources of Differences: Temporary
40. Interest Expense = Coupon + Amortization = PV of future CF x market yield @ issuance
Effects of Lease Classification on F/S - Operating Lease
Straight-line depreciation (SL)
Impact on the B/S of a Discount Bond...
LIFO is appropriate
41. Tax Rate down: DTL down -> Inc. Tax Exp down -> NI up - DTA down -> Inc. Tax Exp up -> NI down
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Trade-Offs Qualitative Characteristics of IFRS
Statement of Cash Flow - relevance...
FIFO after-tax profit =
42. Timing differences (depreciations) - Permanent differences
Bond Issuance Cost under GAAP/IFRS
Operating Risk Ratios...
Ending Inventory =
Sources of Differences betweent F/S & T/
43. Cash Flow available for distribution to the c/s; after all obligations have been paid. CFO - fixed capital investment + net debt increase or CFO - net cap expenditure + net borrowings
Free Cash Flow to Equity - FCFE
IFRS/US GAAP Frameworks: purpose of framework
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Tax base on a liability
44. To improve liquidity and leverage ratios
DBO Funded Status =
# of days payable =
Motivation to Overstate Assets/Understate Liabilities
The best indicator of overstating its profits is...
45. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Measures of Operating Performance - Efficiency Ratios...
Analyzing Effective Tax Rate Reconciliation
Horizontal Common Size Statements...
LIFO results in: (assuming inflationary period)
46. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Taxation Analyst Adjustments...
Return on Equity (ROE)...
To investigate the stability of that structure - Kilgore would be best served by looking at...
Financial Liability: US GAAP/Fair Market Value
47. Diff. in depreciation methods/assumptions; Diff. in inventory methods/assumptions; Diff. in treatment of the effect of exchg rate chgs; Diff. in classifications of investment securities - Goodwill: Internally Generated DON'T capitalize - Purchased =
Financial Adj to Facilitate Comparison...
Barriers to a single framework...
The 4 Qualitative Characteristics of IFRS
Financial Ratios based on B/S: Solvency ratio
48. Assets - liabilities - and equity are presented in a single column.
Tax Loss Carryforward...
Types of accounting changes: accounting principle
The report format of B/S
MD&A contains...
49. Cash collections less direct cash inputs less other cash outfllows
B/S - Long-lived assets PP&E
Vertical Common Size Statements...
CFO - Direct method
Reasons to Lease...
50. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default
Financial Liability: US GAAP/Fair Market Value
Impact on the Cash Flow of a Par Bond...
Debt covenants
Tax base of an asset