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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. 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
B/S - Long-lived assets PP&E
Credit Rating Process...
Revaluation below historic cost...
Disclosure for each segment...
2. Is required under IFRS but not under GAAP
Taxation Disclosure Requirements
Inv. Valuation reporting Inventory ABOVE costs...
Footnote disclosure of Reconciliation of opening and closing carrying values...
Form 144...
3. Both: purpose is to assist development & revision of accting stds - IASB: Firms must consider framework if no std exists - FASB: No express requirement to consider framework
Traditional DuPont Equation...
Free Cash Flow to the Firm - FCFF
Deferred Tax Liability: (DTL)
IFRS/US GAAP Frameworks: purpose of framework
4. Current Ratio (CA/CL): lower - Work. Cap (CA -CL): Lower - Asset TO: (Sales/TA): Lower - ROA (EAT/TA): Lower - ROE (EAT/E): Lower - Debt/Equity: Higher - Since Int. exp + depre > lease pymt in the early years. This decreases NI - and Profitability ra
Types of accounting changes: accounting principle
Complex Capital Structure
Types of accounting changes: prior period adjustments
Effects of Lease Classification on Ratios - Finance Lease
5. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Trade-Offs Qualitative Characteristics of IFRS
B/S - Long-lived assets
ROE interpretation: if ROE is low...
Financial Ratio based on I/S...
6. Trading securities - Available-for-sale - Derivatives (standalone or embedded in non-derivative intrument) - Assets with fair value exposure hedged by derivatives
Financial Assets: US GAAP/Fair Market Value
Defined Contribution Plans
Motivation to Overstate Assets/Understate Liabilities
Footnote disclosure of Reconciliation of opening and closing carrying values...
7. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Balance Sheet
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
FIFO ending inventory =
DTA Issues
8. Depreciation exp = (cost-residual value)/ useful life
Income Tax Paid...
The account format of B/S
Straight-line depreciation (SL)
Convergence IFRS/US GAAP...
9. To improve liquidity and leverage ratios
Motivation to Overstate Assets/Understate Liabilities
Credit Analysis: Ratios
Discontinued Operations...
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
10. Reported BELOW the line.Prohibited under IAS1 1) Losses from expropriation of assets. 2) Uninsured losses from natural disasters - Analyst must determine if it is really THAT extraordinary and if should be included in forecasting
Credit Rating Process...
Defined Benefit Plans
Extraordinary Items: Unusual AND Infrequent items...
Market Value (GAAP)...
11. 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
An Increase in the Valuation Allowance Account...
Credit Rating Process...
CFO - Direct method
Sales Basis Revenue Recognitions
12. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Stock options: Use treasury stock method
Statement of Cash Flow - relevance...
Barter (IASB & FASB)
FIFO after-tax profit =
13. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.
Financial Ration based on B/S: Liquidity Ratios
Sustainable Growth
Revaluation below historic cost...
Unusual OR Infrequent items...
14. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
Impact on the Cash Flow of a Par Bond...
Inventory mangement: Low T/O (High DOH)...
Footnote Finance Liability Disclosure
Financial Ration based on B/S: Liquidity Ratios
15. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
Effective Tax Rate
Types of accounting changes: accounting principle
# of days payable =
Asset Revaluation: IFRS
16. Management turnover.
Vertical Common Size Statements...
Effects of Lease Classification on F/S - Finance Lease
IFRS Revenue Recognition For Service
To investigate the stability of that structure - Kilgore would be best served by looking at...
17. 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 =
B/S - short-term investments
Financial Adj to Facilitate Comparison...
The best indicator of overstating its profits is...
Activity Ratios
18. 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
Barter (IASB & FASB)
Disclosure for each segment...
Statement of Cash Flow - relevance...
Return on total capital (ROTC)...
19. Securities that would DECREASE EPS if exercised - If X< Avg. stock price then could be exercised - If X> Avg. stock price then will not be exercised
Extraordinary Items: Unusual AND Infrequent items...
Dilutive Securities
Reasons to Lease...
Straight-line depreciation (SL)
20. 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
days of sales o/s =
Funded Status US GAAP & IFRS
Financial Implications of Capitalizing...
IFRS/US GAAP Frameworks: purpose of framework
21. 1) Show each item as a % of Net Revenue 2) Show each inflow as a % of total inflows 3) Show each outflow as a % of total outflow
IASB - Goals
Common Size Statement
CFI Analysis...
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
22. Employer promises specific payment stream at retirement - Payments are based on yrs of service - retirement age - and final salary - Employers bears investment risk - Funded by pool of assets - Complicated accounting
Auditor/Audit Opinion
Cost included in Inventory on b/s...
Defined Benefit Plans
Free Cash Flow to Equity - FCFE
23. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.
Forecasting Financial Performance: Top Down Approach...
Trade-Offs Qualitative Characteristics of IFRS
IFRS/US GAAP Frameworks: underlying assumptions...
Revaluation above historic cost...
24. 'Assets' - Cash spent on long-term assets - Proceeds from the sale of long-term assets - Cash flow from investments in JVs - affiliates - and long-term investments in securities (trading securities are CFO) - [CFI = Cash additions - cash rcvd on disp
Cash Flow From Financing (USA) (Source of Cash)
Free Cash Flow to the Firm - FCFF
Tax Loss Carryforward...
Cash Flow From Investing (USA) (Assets)
25. Amount deductible in future tax return
Debt covenants
Tax base of an asset
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
IFRS/US GAAP Frameworks: F/S elements...
26. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)
Warning Signs of Earnings Manipulation
Activity Based Restrictions
IFRS: Required F/S
Auditor/Audit Opinion
27. Interest Expense = Coupon + Amortization = PV of future CF x market yield @ issuance
Return on Assets ROA...
SEC guidance for Revenue Recognition
Impact on the B/S of a Discount Bond...
Tax base of an asset
28. Carrying amount of the liability minus the amount that will be deductible in the future.
An Increase in the Valuation Allowance Account...
Expensed Intangibles...
Deferred Tax Liability: (DTL)
Tax base on a liability
29. Profit recognized is the proportion of cash collected x total expected profit Revenue = (COG provided to date/total COG to be provided) x total expected revenue
Effects of Lease Classification on F/S - Operating Lease
Installment Method...
SEC guidance for Revenue Recognition
IASB
30. If any ONE out of the FOUR are met must be classifed as Financial Lease: 1) Title transfered to lessee at the end of lease; 2) Bargain purchase option at the end of the lease; 3) Lease period is at least 75% of asset's useful life; 4) The PV of least
Finance (capital) Lease criteria (under US GAAP)
Types of accounting changes: accounting principle
Activity Ratios
LIFO is appropriate
31. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
Statement of Cash Flow - relevance...
MD&A contains...
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Cash Flow From Operations (CFO) - IFRS
32. FIFO: EI = newest purchases - LIFO: EI = oldest purchases - Avg. Costs: EI = Available for sale/Units - Specific ID: high value items (cars - diamonds etc)
Inventory Cost Flow Methods...
Asset Revaluation: IFRS
Analysis: Market Value of Debt
An Increase in the Valuation Allowance Account...
33. 1) Evaluating equity investments for a portfolio; 2) Evaluating potential M&A; 3) Evaluating a subsidiary of a parent company; 4) Deciding on private equity/ venture cap investment 5) Determine creditworthiness - borrowing; 6) Extending credit to
Asset Capitalization
Financial Ration based on B/S: Liquidity Ratios
Extraordinary Items: Unusual AND Infrequent items...
Roles of financial reporting & analysis include...
34. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
Financial Ration based on B/S: Liquidity Ratios
IFRS Revenue Recognition
An Increase in the Valuation Allowance Account...
Impact on the Cash Flow of a Zero Coupon Bond...
35. 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
Convergence IFRS/US GAAP...
Form 144...
Cash Flow From Operations (CFO) - FASB
Taxation: Income Tax Expense
36. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
IFRS Revenue Recognition For Service
Common Size Statement
IFRS: Required F/S
Analyst Treaments of DTL
37. BV - cash paid = gain/(loss) + any unamortized issue costs (US only) = Gain/Loss on repurchase [I/S as continuing operations)
Impact on the B/S of a Discount Bond...
Inventory Valuatoin (LCM)
Gain/(loss) on bond early retirement: (derecognition of debt)
DTA Issues
38. Tax liability based on taxable income as per TAX Report/RETURN
Intercorporate Investment: 20% - 50% votes...
Motivation to Overstate Assets/Understate Liabilities
Trade-Offs Qualitative Characteristics of IFRS
Taxation: Tax Payable
39. 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
Financial Implications of Capitalizing...
Sources of Differences: Temporary
Valuation Allowance...
Form DEF-14A...
40. Improve ROA and Asset TO Ratios - Report higher aquisition goodwill
Motivation to Over-report Earnings
Impact on the B/S of a Par Bond...
Motivation to Understate Assets/Overstate Liabilities
Financial Assets: US GAAP/Amortized at Cost
41. LIFO after-tax profit + (change in LIFO reserve)(1 - t)
Analyst Treaments of DTL
Financial Ratios based on B/S: Solvency (Coverage)
FIFO after-tax profit =
Dilutive Securities
42. 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
Impact on the Cash Flow of a Par Bond...
Impact on the B/S of a Premium Bond...
B/S - Long-lived assets PP&E
IFRS: Presentation Requirements
43. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default
Debt covenants
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?
CFO - Indirect method steps...
44. 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
Motivation to Under-report Earnings
Steps of F/S Analysis
Impact on the B/S of a Zero Coupon Bond...
Taxation Disclosure Requirements
45. NI/Avg. Total Assets - NI + Int (1-t) / Avg. Total Assets - Operating ROA: Operating INc/ Avg. Total Assets
Finance (capital) Lease criteria (under US GAAP)
Free Cash Flow to the Firm - FCFF
Analyst Treaments of DTL
Return on Assets ROA...
46. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.
Screening for Potential Equity Investment: Criteria
IFRS/US GAAP Frameworks: F/S elements...
Financial Ratio based on I/S...
Sales Basis Revenue Recognitions
47. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
# of days payable =
Sarbanes-Oxley Management Report...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Operating vs. Non-operating Income
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
Intangibles under IFRS...
Operating Lease
Inventory Systems...
SEC guidance for Revenue Recognition
49. 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
Statement of Cash Flow - relevance...
Sources of Differences: Temporary
Capitalization of Interest...
Financial Liability: US GAAP/Fair Market Value
50. Shows sales and cost of goods sold.Under GAAP: 1) must be primary obligor under the contract; 2) bear inventory and credit risk; 3) have the ability to choose its supplier; 4) have reasonable latitude to set the price.
Revaluation below historic cost...
Return on Assets ROA...
Gross Reporting of Revenue
Forecasting Financial Performance: Top Down Approach...