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Test your basic knowledge |
Advanced Financial Reporting And Analysis
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Study First
Subject
:
business-skills
Instructions:
Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can
study here
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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. 1) understandability; 2) relevance; 3) reliability; and 4)comparability - No hierarchy
The 4 Qualitative Characteristics of IFRS
Free Cash Flow to the Firm - FCFF
BASIC EPS
Effects of Lease Classification on Ratios - Operating Lease
2. Ensure that information in f/s is useful to a wide range of users.
The objective of f/s is to...
Types of accounting changes...
Effects of Lease Classification on F/S - Finance Lease
FIFO after-tax profit =
3. 1)DTL - DTA - valuation allowance - Net ? in valutaion allowance over the period 2) unrecognized DTL or undistributed earning from subsidiaries & JVs 3) Current yr tax effect of each type of temp difference 4)Components of Inc Tax Expense 5)Tax loss
Taxation Disclosure Requirements
Deferred Tax Liability: (DTL)
B/S - Stockholders' Equity
ROE interpretation: if ROE is low...
4. Income Tax Expense/Pretax Income (EBIT) Income Tax Exp. = Taxes payable + chg in deferred ta
LIFO is appropriate
Effective Tax Rate
Valuation allowance
Installment Method...
5. To improve liquidity and leverage ratios
Motivation to Overstate Assets/Understate Liabilities
Footnote disclosure of Reconciliation of opening and closing carrying values...
DTA Issues
ROE interpretation: if ROE is low...
6. Used when estimates of revenue or cost are unreliable or short-term contracts - (US GAAP only) Revenue - expense - and profit is recognized at completion (IFRS) Revenue is recognized to the extent of contract cost - cost are expensed when incureed
IOSCO
Capitalization of Interest...
FASB
Under Completed Contract Method...
7. Return on Total Equity = NI/ Avg. Total Equity - Return on C/E = NI - Pref. Div/ Avg. Common Equity
Measures of Operating Performance - Efficiency Ratios...
Return on Equity (ROE)...
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Debt covenants
8. Potentially dilutive securitites [options - warrants - convertible securities]
The report format of B/S
Complex Capital Structure
Activity Based Restrictions
The objective of f/s is to...
9. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
Debt covenants
Extended DuPont Equation...
Cash Flow From Operations (CFO) - FASB
Ratios that directly affect choice of Inventory Account...
10. 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
IFRS/US GAAP Frameworks: purpose of framework
Cost included in Inventory on b/s...
MD&A contains...
Impact on the B/S of a Discount Bond...
11. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Financial Assets: US GAAP/Fair Market Value
Revaluation below historic cost...
Trade-Offs Qualitative Characteristics of IFRS
Expensed Intangibles...
12. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)
Financial Implications of Capitalizing...
Auditor/Audit Opinion
Capitalization of Interest...
% of Completion
13. Assess liquidity - solvency and financial flexibiliy
Statement of Cash Flow - relevance...
Measures of Operating Performance - Efficiency Ratios...
Operating Lease
The report format of B/S
14. Management turnover.
The report format of B/S
Taxation: Tax Payable
To investigate the stability of that structure - Kilgore would be best served by looking at...
Free Cash Flow to Equity - FCFE
15. Shows the financial position of a firm AT A SINGLE POINT in time A = L + E.
Balance Sheet
Asset Revaluation: IFRS
CFO - Direct method
Tax base of an asset
16. 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
LIFO results in: (assuming inflationary period)
Capitalized Intangibles...
Impact on the B/S of a Zero Coupon Bond...
Calculate dividends declared...
17. LT D-to-E = Total LT Debt / Total Equity - D-to-E = Total Debt / Total Equity - Financial leverage ratio = Total Assets/Total Equity - Total Debt Ratio = Total Debt / Total Asset - Debt-to-Capital = Total Debt/ Total Debt + SOE - All Solvency are ove
Free Cash Flow to the Firm - FCFF
Financial Ratios based on B/S: Solvency ratio
Cash flow ratios
To investigate the stability of that structure - Kilgore would be best served by looking at...
18. Periodic: Inventory and COGS determined at p/e - Perpetual: Inv. & COGS updated for each sale (no purchase account need) - Cost flow method impact: FIFO = same for both - LIFO = different - Avg. cost = different - FIFO & LIFO relationship remain
Screening for Potential Equity Investment: Criteria
IFRS: Required F/S
Inventory Systems...
Taxation: Tax Payable
19. EBIT/ Avg. total capital - Total capital includes: debt capital - so int. is aded back to NI
Return on total capital (ROTC)...
Units of Production Method
Diluted EPS
Operating Risk Ratios...
20. Current ratio = CA/CL - Quick/Acid test = (cash + mkt sec + AR)/CL - Cash ratio = (Cash + mkt sec)/ CL - Defensive interval = (cash + mkt sec + AR)/Daily Cash Exp - Liquidity is over current Liabilities
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Financial Ration based on B/S: Liquidity Ratios
Inventory mangement: High T/O (low DOH) and sales growth below industry average
DBO Funded Status =
21. It is the purchase of an asset using debt finance.
Footnote Finance Liability Disclosure
Fraud Triangle - 3) Attitude/rationalization
What is the economic substance of financial (capital) lease?
FIFO is appropriate
22. Both: General agreement on objectives; focus on wide range of users - IASB: One objective for all users - FASB: Separate objectives for business entities and non-business entities.
IFRS/US GAAP Frameworks: objective of F/S
Taxation Analyst Adjustments...
Operating vs. Non-operating Income
Intangible Assets
23. Higher share price - Lower borrowing cost - Higher incentive compensation
Creative Cash Flows Accounting: Motivation
Bond Issuance Cost under GAAP/IFRS
Financial Liability: US GAAP/Amortized at Cost
Footnote Finance Liability Disclosure
24. 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:
CFO - Indirect method steps...
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Extended DuPont Equation...
25. Days of sales o/s + days of inv. on hand - # of days payable (shorter the better)
Cash Conversion Cycle =
Impairments recognition (IFRS)
Balance Sheet
Deferred Tax Liability: (DTL)
26. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Installment Method...
CFO - Indirect method steps...
CFO - Direct method
Measures of Operating Performance - Efficiency Ratios...
27. 365/(AR T/O) = 365/(Rev/Avg. AR)
LIFO results in: (assuming inflationary period)
Return on Assets ROA...
Horizontal Common Size Statements...
days of sales o/s =
28. 1) Land @ cost; 2) Plant & building @ historic cost less accu'm depr; 3) Equipment @ historic cost less accu'm depr 4) Intangible assets @ historic cost less accu'm amort
DBO Funded Status =
IFRS/US GAAP Frameworks: objective of F/S
B/S - Long-lived assets PP&E
Income Statement
29. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Funded Status US GAAP & IFRS
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
FIFO ending inventory =
Stock options: Use treasury stock method
30. Off B/S asset or liability = Footnotes disclosure - Lease payments are expensed when due via I/S - Payments are CFO outflows
days of inv. on hand =
IFRS: Presentation Requirements
Operating Lease
Cost included in Inventory on b/s...
31. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
Creative Cash Flows Accounting: Technique
Credit Analysis: Ratios
Effects of Lease Classification on F/S - Finance Lease
Inv. Valuation reporting Inventory ABOVE costs...
32. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Taxation: Income Tax Expense
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Financial Lease Reporting
Financial Liability: US GAAP/Fair Market Value
33. 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
Capitalization of Interest...
IASB - Goals
Sustainable Growth
B/S - Long-lived assets PP&E
34. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
Ending Inventory =
Deferred Tax Asset: (DTA)
Add/ Sub changes to related b/s operating accounts
Barriers to a single framework...
35. Shows the performance of the company over a reporting period.
Sustainable Growth
Impact on the Cash Flow of a Par Bond...
Income Statement
Form DEF-14A...
36. 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
Installment Method...
Free Cash Flow to Equity - FCFE
B/S - Long-lived assets PP&E
Fraud Triangle - 3) Attitude/rationalization
37. 'Equity' -Chg in debt - Cash raised from equity and debt - -Chg in c/s - Cash spent on repurchasing equity or redeeming debt -Dividends paid - Calculate dividend declared: NI -*Div.Declared = chg in are/E - Div. Declared +(-) chg in div. payable = c
Auditor/Audit Opinion
Cash Flow From Financing (USA) (Source of Cash)
Cash Flow From Investing (USA) (Assets)
Traditional DuPont Equation...
38. 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
Financial Ratios based on B/S: Solvency ratio
MD&A contains...
Analyst Treaments of DTL
Effects of Lease Classification on F/S - Finance Lease
39. 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
B/S - short-term investments
Financial Ratios based on B/S: Solvency ratio
CFO - Indirect method steps...
Valuation allowance
40. 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.
Valuation allowance
Inventory Valuatoin (LCM)
Financial Implications of Capitalizing...
Fraud Triangle - 1) Incentive/Pressure
41. US 1) Financial Accounting Standards Board; 2) Standards form GAAP; 3) Aims - useful - relevant - reliable - consistent and comparable; 4) SEC deems FASB standard authoritative
ROE interpretation: if ROE is low...
B/S - Stockholders' Equity
FASB
Taxation: Tax Payable
42. Shows only the difference between sales and cost of goods sold Users are usually: 1) internet-based merchandising companies; 2) Sell prodict but never hold inventory; 3) Arrangement for supplier to ship directly to end customer. Discolsure policies
Net Reporting of Revenue
Financial Ration based on B/S: Liquidity Ratios
Taxable Income
Activity Based Restrictions
43. Interest Expense = Coupon + Amortization = PV of future CF x market yield @ issuance
Intercorporate Investment: < 20% votes...
Impact on the B/S of a Discount Bond...
The best indicator of overstating its profits is...
Fraud Triangle - 2) Opportunity
44. Low: P/E - P/CF - or P/S - High: ROE - ROA - growth rates of sales and earnings - Low: leverage
Motivation to Under-report Earnings
Warning Signs of Earnings Manipulation
IFRS: Required F/S
Screening for Potential Equity Investment: Criteria
45. Aggressive Revenue Recognition - Diff. growth rates of operating cash flow and earnings - Abnormal comparative sales growth - Abnormal inventory growth as compared to sales - Moving nonoperating income and nonrecurring gains up to I/S to boost revenu
Impact on the Cash Flow of a Par Bond...
Balance Sheet - formats
Cash Flow From Operations (CFO) - FASB
Warning Signs of Earnings Manipulation
46. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes
Impact on the Cash Flow of a Par Bond...
DBO Funded Status =
Low Quality Earnings is result of...
Types of accounting changes: accounting estimate
47. = LIFO ending inventory + LIFO reserve FIFO after-tax profit
FIFO ending inventory =
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Financial Liability: US GAAP/Fair Market Value
Capitalized Intangibles...
48. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
DTA Issues
Inventory Valuatoin (LCM)
Taxation Disclosure Requirements
49. 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 =
DTA Issues
Impact on the B/S of a Par Bond...
Financial Adj to Facilitate Comparison...
Cash Flow From Operations (CFO) - FASB
50. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Impact on the B/S of a Premium Bond...
Cash Conversion Cycle =
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Effects of Lease Classification on Ratios - Operating Lease