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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.
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. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
IFRS: Required F/S
B/S - Long-lived assets
FIFO is appropriate
Inventory Valuatoin (LCM)
2. BV - cash paid = gain/(loss) + any unamortized issue costs (US only) = Gain/Loss on repurchase [I/S as continuing operations)
Fraud Triangle
Net Reporting of Revenue
Gain/(loss) on bond early retirement: (derecognition of debt)
Implication for Analysts: Be aware of differences in tax reconcilation between periods
3. Delay Supplier pymt: boost CFO; review days' sales in AP; Financing of payables: use N/P to pay off AP; manipulate timing of CFO; Securitization of A/are: accelerates appearance of collection - boosts CFO; Tax benefit of stock options: lower tax paid
Creative Cash Flows Accounting: Technique
Component depreciation;
Free Cash Flow -CFO
Financial Assets: US GAAP/Fair Market Value
4. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Intangibles under IFRS...
FASB
Operating vs. Non-operating Income
Sources of Differences: Permanent
5. '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
Income Statement
Cash Flow From Financing (USA) (Source of Cash)
Cash Flow From Investing (USA) (Assets)
Form 144...
6. If PV of min lease pymt < cost of asset 1) lessor is a dealer or seller of the leased equipment 2) at the time of lease inception - lessor recognized a gross profit on sale. (NI - are/E - and Assests are higher) 3) Interest rev recognized over period
Lessor Accounting Capital Lease: Sales-Type Lease
IFRS: Presentation Requirements
Impact on the Cash Flow of a Zero Coupon Bond...
days of sales o/s =
7. 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
Characteristics of an effective framework
What is the economic substance of financial (capital) lease?
Capitalization of Interest...
Inventory mangement: High T/O (low DOH) and sales growth above industry average
8. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
Taxation: Income Tax Expense
Taxation: Tax Payable
IFRS/US GAAP Frameworks: purpose of framework
IFRS Revenue Recognition
9. You.S. GAAP
Motivation to Over-report Earnings
IFRS/US GAAP Frameworks: Recognition of Elements...
Financial Assets: US GAAP/Fair Market Value
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
10. Taxes payable + chg deferred Tax as per Financial Report
Cash Flow From Operations (CFO) - IFRS
Financial Ration based on B/S: Liquidity Ratios
Impact on the B/S of a Premium Bond...
Taxation: Income Tax Expense
11. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
The account format of B/S
Warning Signs of Earnings Manipulation
Return on total capital (ROTC)...
Effective Tax Rate
12. Management turnover.
Vertical Common Size Statements...
Cash Flow From Operations (CFO) - FASB
Net Realizable Value (NRV) (IFRS)
To investigate the stability of that structure - Kilgore would be best served by looking at...
13. 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
Financial Ration based on B/S: Liquidity Ratios
Cash Flow: Logic (A = L + E)
Inventory Systems...
Impact on the B/S of a Zero Coupon Bond...
14. 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
Gross Reporting of Revenue
Dilutive Securities
Defined Benefit Plans
Financial Ratios based on B/S: Solvency ratio
15. Efficient inventory managment
Taxation Disclosure Requirements
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Financial Ratios based on B/S: Solvency (Coverage)
Depreciation Methods...
16. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Dilutive Securities
Effects of Lease Classification on Ratios - Operating Lease
Financial Liability: US GAAP/Fair Market Value
CFO - Indirect method steps...
17. Days of sales o/s + days of inv. on hand - # of days payable (shorter the better)
Financial Lease Reporting
Cash Conversion Cycle =
Financial Ratios based on B/S: Solvency (Coverage)
Sources of Differences: Permanent
18. Cash collections less direct cash inputs less other cash outfllows
IOSCO
Capitalization of Interest...
Double-decline balance (DDB)
CFO - Direct method
19. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
Free Cash Flow to the Firm - FCFF
Cash Flow From Operations (CFO) - FASB
LIFO results in: (assuming inflationary period)
DBO Funded Status =
20. 1) Cheaper Financing; 2) Reduce risk of obsolescence; 3) Less restrictive provisions; 4) Off-B/S reporting; 5) Tax Reporting Advantages (treated as ownership for tax ( deduct depreciation and interest expense)
Types of accounting changes: accounting principle
Deferred Tax Asset: (DTA)
Discontinued Operations...
Reasons to Lease...
21. 1) 3rd party pressure: 1) analyst/institutional expectations; 2) need to obtain finance; 3) listing requirements; 4) Debt covenants; 5) Transactions 2) Directors' Financial Position: 1) Equity interest; 2) Stock options; 3) Personal debt guarantees.
Discontinued Operations...
Motivation to Under-report Earnings
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Fraud Triangle - 1) Incentive/Pressure
22. Shows the performance of the company over a reporting period.
CFI Analysis...
Income Statement
Cash Flow From Financing (USA) (Source of Cash)
Steps of F/S Analysis
23. 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
IFRS/US GAAP Frameworks: purpose of framework
# of days payable =
Extraordinary Items: Unusual AND Infrequent items...
Steps of F/S Analysis
24. 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)
Trade-Offs Qualitative Characteristics of IFRS
CFO - Direct/Indirect method
Free Cash Flow to Equity - FCFE
Motivation to Understate Assets/Overstate Liabilities
25. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)
IFRS/US GAAP Frameworks: Measurement of Elements...
Form 8-K...
Financial Ratios based on B/S: Solvency (Coverage)
Financial Liability: US GAAP/Fair Market Value
26. Interest expense = Coupon rate
Sales Basis Revenue Recognitions
Balance Sheet - formats
Impact on the B/S of a Par Bond...
Activity Based Restrictions
27. Assets: higher - Liabilities: Higher - NI (Early yrs): Lower - CFO: Higher (b/c only interest portion is classed as CFO) - CFF: Lower (b/c principal repayment portion) - Total CF: Same - Since Int. exp + depre > lease pymt in the early years. This de
Effects of Lease Classification on F/S - Finance Lease
FASB
Valuation allowance
Horizontal Common Size Statements...
28. 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
Funded Status US GAAP & IFRS
Analyst Treaments of DTL
Market Value (GAAP)...
Traditional DuPont Equation...
29. 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
Motivation to Overstate Assets/Understate Liabilities
Depreciation Methods...
Intercorporate Investment: < 20% votes...
Simple capital structure
30. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Depreciation Methods...
Common Size Statement
Fraud Triangle
Deferred Tax Asset: (DTA)
31. 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
B/S - short-term investments
Common Size Statement
Ending Inventory =
Auditor/Audit Opinion
32. 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...
Convergence IFRS/US GAAP...
Extended DuPont Equation...
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
33. 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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34. 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
Unusual OR Infrequent items...
Intercorporate Investment: < 20% votes...
Intercorporate Investment: 20% - 50% votes...
IFRS/US GAAP Frameworks: F/S elements...
35. 1) Firms adds a lease asset and a lease liability to b/s = amounts - 2) Recognize int. expense on liability and depreciation exp on asset - Since Int. exp + depre > lease pymt in the early years. This decreases NI - and Profitability ratios.
CFO Analysis...
Calculate dividends declared...
Comprehensive income...
Financial Lease Reporting
36. 1) Aggregation where appropriate; 2) No offsetting assets against liabilities or income against exp.; 3) Classifed B/S; 4) Minimum Info on face; 5) Minimum disclosure; 6) Comparative info.
Reasons to Lease...
IFRS: Presentation Requirements
Net Realizable Value (NRV) (IFRS)
Measures of Operating Performance - Efficiency Ratios...
37. +Cash rcvd from customer - +Cash dividends rcvd - +Cash interest rcvd - +Other cash income ((trading securities) - Payment to suppliers - Cash expenses (wages etc) - Cash interest paid - Cash taxes paid
Sustainable Growth
Financial Lease Reporting
Cash Flow From Operations (CFO) - FASB
Fraud Triangle - 3) Attitude/rationalization
38. Impairment is recorded on a Contra asset account - revalued below original cost means contra asset account is 0 1) B/S asset reduced to FMV 2) Loss take to I/S 3) Reversal of org. loss allowed I/S 4) Increase above org. cost to equity (comprehenive
Income Tax Paid...
Valuation Allowance...
Revaluation below historic cost...
ROE interpretation: if ROE is low...
39. 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
Credit Rating Process...
The 4 Qualitative Characteristics of IFRS
Balance Sheet
DTA/DTL: Effect on Net Income when Tax Rate decreases...
40. Outflow - (bringing bond DOWN to par)
Taxable Income
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Installment Method...
Analyzing Effective Tax Rate Reconciliation
41. 1) installment sales (If collection is certain - rev is recognized at time of sale) 2) installment method: (if collection cannot be estimated) 3) cost recovery (if collectability is highly uncertain)
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Intangible Assets
Sales Basis Revenue Recognitions
IASB
42. 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
Barriers to a single framework...
CFO - Direct method
Financial Lease Reporting
43. For inventory that does not deteriorate with age.
LIFO is appropriate
FIFO results in: (assuming inflationary period)
DTA Issues
Sources of Differences betweent F/S & T/
44. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Stock options: Use treasury stock method
Auditor/Audit Opinion
Fraud Triangle - 3) Attitude/rationalization
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
45. Securities that would INCREASE EPS if exercised
Intangible Assets
Antidilutive Securities
Financial Ratios based on B/S: Solvency ratio
Forecasting Financial Performance: Top Down Approach...
46. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same
Defined Benefit Plans
Effects of Lease Classification on F/S - Operating Lease
IFRS/US GAAP Frameworks: Measurement of Elements...
% of Completion
47. 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)
LIFO results in: (assuming inflationary period)
Revaluation above historic cost...
Add/ Sub changes to related b/s operating accounts
Cash Conversion Cycle =
48. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower
FIFO results in: (assuming inflationary period)
IASB
The best indicator of overstating its profits is...
Free Cash Flow to the Firm - FCFF
49. 1) Credit Scoring (CF Forecast) 2) Equity Investment screening (cutoff values)
Forecasting Financial Performance: Application
Intangible Assets
The best indicator of overstating its profits is...
IFRS/US GAAP Frameworks: Measurement of Elements...
50. Timing differences (depreciations) - Permanent differences
Financial Ratios based on B/S: Solvency ratio
Valuation allowance
Effects of Lease Classification on Ratios - Operating Lease
Sources of Differences betweent F/S & T/