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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. 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
Sources of Differences: Permanent
days of sales o/s =
Capitalized Intangibles...
CFO - Indirect method steps...
2. Management turnover.
Capitalized Intangibles...
Types of accounting changes...
Free Cash Flow -CFO
To investigate the stability of that structure - Kilgore would be best served by looking at...
3. 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)
# of days payable =
Footnote Finance Liability Disclosure
Intercorporate Investment: 20% - 50% votes...
Tax Loss Carryforward...
4. NI/Avg. Total Assets - NI + Int (1-t) / Avg. Total Assets - Operating ROA: Operating INc/ Avg. Total Assets
Inventory Cost Flow Methods...
Cost included in Inventory on b/s...
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Return on Assets ROA...
5. Meet Analyst Expectations - Meet debt covenants - Incentive compensation
Return on total capital (ROTC)...
Motivation to Over-report Earnings
Intangible Assets
Comprehensive income...
6. Increasing CFI - may indicate growth OR Decreasing CFI or sell capital assets to conserve or generate cash.May result in higher outflows in the future as older assets are replaced or growth conts.
Balance Sheet
Activity Ratios
CFI Analysis...
Expensed Intangibles...
7. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method
Impact on the Cash Flow of a Discount Bond...
Intercorporate Investment: 20% - 50% votes...
To investigate the stability of that structure - Kilgore would be best served by looking at...
B/S - Long-lived assets
8. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
Comprehensive income...
Types of accounting changes...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Finance (capital) Lease criteria (under US GAAP)
9. 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:
Intercorporate Investment: 20% - 50% votes...
MD&A contains...
Impact on the Cash Flow of a Discount Bond...
CFO - Indirect method steps...
10. 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.)
CFO - Direct method
days of inv. on hand =
The report format of B/S
days of sales o/s =
11. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
Simple capital structure
Deferred Tax Asset: (DTA)
Balance Sheet - formats
Vertical Common Size Statements...
12. Cash Flow available for distribution to all investors (stockholders & debt holders) CFO + int(1-t) - fixed capital investment or [FCFF calculated from NI = NI + noncash charged + (Int exp(1-tax rate) - net cap investment - working capital invt.]
Free Cash Flow to the Firm - FCFF
Depreciation Methods...
IFRS/US GAAP Frameworks: Measurement of Elements...
Debt covenants
13. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
Impairments recognition (GAAP)
An Increase in the Valuation Allowance Account...
The objective of f/s is to...
Impact on the B/S of a Discount Bond...
14. EBIT/ *Gross Interest EBITDA/ *Gross Interest *(inc'd capitalized interest) - How many times is EBIT or EBITDA bigger than gross interest? Higher ratio is desired. Shows ability to cover int. payment
Form 8-K...
From creditor POV: Int. Coverage;
Free Cash Flow -CFO
Potentially Dillutive Securities
15. 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
Balance Sheet - formats
Taxation: Income Tax Expense
Types of accounting changes...
Warning Signs of Earnings Manipulation
16. 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
Statement of Cash Flow - relevance...
Financial Liability: US GAAP/Amortized at Cost
Revaluation below historic cost...
IFRS/US GAAP Frameworks: purpose of framework
17. 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
Types of accounting changes: accounting principle
Creative Cash Flows Accounting: Technique
Market Value (GAAP)...
Auditor/Audit Opinion
18. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)
Depreciation Methods...
Auditor/Audit Opinion
Dilutive Securities
Gross Reporting of Revenue
19. Low: P/E - P/CF - or P/S - High: ROE - ROA - growth rates of sales and earnings - Low: leverage
Screening for Potential Equity Investment: Criteria
Add/ Sub changes to related b/s operating accounts
Cost recovery method...
IFRS: Presentation Requirements
20. 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
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Financial Ratio based on I/S...
Barter (IASB & FASB)
Intercorporate Investment: < 20% votes...
21. 2 step-process 1) Recoverability: carrying value > undiscounted CF from asset's use and disposal 2) Loss measurement: Loss is the excess of carrying value over the asset's fair market value or PV of cash flows - Loss reversal for held-for-use assets
FIFO after-tax profit =
Impairments recognition (GAAP)
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Calculate dividends declared...
22. Amount deductible in future tax return
Reasons to Lease...
Tax base of an asset
CFO - Direct/Indirect method
Inventory Systems...
23. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Statement of Cash Flow - relevance...
Return on Assets ROA...
Tax Loss Carryforward...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
24. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
Fraud Triangle - 2) Opportunity
Traditional DuPont Equation...
Impact on the Cash Flow of a Zero Coupon Bond...
The account format of B/S
25. GAAP: direct method must disclose adj to reconcile NI to CFO. reconciliation is NOT required for IFRS. IFRS: pymts for Int & Taxes MUST be disclosed separately in the CF Stmnt under direct or indirect. Under GAAP - this can be reported in CF stmnt or
Market Value (GAAP)...
Motivation to Understate Assets/Overstate Liabilities
CFO Disclosure requirement...
Valuation allowance
26. Change in equity from transactions from nonownership sources. Include: NI - chg in foreign currency translation adj. - chg in pension adj to funded status - chg unrealized gains/losses on derivatives contracts accounted for as hedges - chng in unrea
Analyst Treaments of DTL
Comprehensive income...
Inventory Systems...
Taxable Income
27. Cash collections less direct cash inputs less other cash outfllows
CFO - Direct method
Creative Cash Flows Accounting: Motivation
Operating Lease
IFRS: Presentation Requirements
28. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Impact on the B/S of a Discount Bond...
Revaluation below historic cost...
Financial Liability: US GAAP/Fair Market Value
IFRS/US GAAP Frameworks: objective of F/S
29. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
days of sales o/s =
An Increase in the Valuation Allowance Account...
Impact on the Cash Flow of a Par Bond...
Cash Flow From Operations (CFO) - FASB
30. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Motivation to Understate Assets/Overstate Liabilities
Stock options: Use treasury stock method
Return on Assets ROA...
Cash Flow From Investing (USA) (Assets)
31. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Forecasting Financial Performance: Application
IFRS/US GAAP Frameworks: objective of F/S
IFRS: Required F/S
Measures of Operating Performance - Efficiency Ratios...
32. Off B/S asset or liability = Footnotes disclosure - Lease payments are expensed when due via I/S - Payments are CFO outflows
Operating Lease
Balance Sheet - formats
Straight-line depreciation (SL)
Forecasting Financial Performance: Top Down Approach...
33. Trade relief - Contingent consideration - Union concessions
Motivation to Under-report Earnings
Intercorporate Investment: > 50% votes...
Sources of Differences: Permanent
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
34. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
Add/ Sub changes to related b/s operating accounts
Taxation Disclosure Requirements
Asset Revaluation: IFRS
The objective of f/s is to...
35. You.S. GAAP
Creative Cash Flows Accounting: Technique
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Financial Lease Reporting
36. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
IFRS/US GAAP Frameworks: Recognition of Elements...
Sales Basis Revenue Recognitions
Footnote disclosure of Reconciliation of opening and closing carrying values...
Expensed Intangibles...
37. Shows the performance of the company over a reporting period.
Income Statement
IOSCO
Intangibles under IFRS...
An Increase in the Valuation Allowance Account...
38. 1) Forecast GDP 2) Regress industry sales against GDP 3) Forecast industry sales 4) Cosider changes to firm's mkt share 5) Forecast firms sales 6) Use hisoric margins for stable firms or forecast individual expense items 7) Remove non-recurring items
Fraud Triangle - 2) Opportunity
% of Completion
Forecasting Financial Performance: Top Down Approach...
CFO Analysis...
39. [net income - preferred dividends] + [convertible prf.dividends] + [convertible debt int.] (1-t) / (weighted avg. of c/s o/s) + (shares from conversion of conv. pfd. shares) + (shares from conversion of conv. debt) + (shares issuable from stock optio
Depreciation Methods...
Discontinued Operations...
Diluted EPS
Revaluation above historic cost...
40. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.
Fraud Triangle
IFRS: Required F/S
Sustainable Growth
LIFO results in: (assuming inflationary period)
41. Fair Value of Plan Assets - Defined Benefit Obligation (DBO) - Fair Value > DBO: overfunded (asset on B/S - GAAP) - Fair Value < DBO: underfunded (liability on B/S - GAAP) - (Funded Status = Economic Position of Plan)
DBO Funded Status =
Depreciation Methods...
Tax base on a liability
Inventory Systems...
42. 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)
CFO - Direct/Indirect method
IFRS/US GAAP Frameworks: purpose of framework
Balance Sheet - formats
Market Value (GAAP)...
43. Interest Expense = Coupon + Amortization = PV of future CF x market yield @ issuance
Impact on the B/S of a Discount Bond...
Financial Liability: US GAAP/Amortized at Cost
Traditional DuPont Equation...
Under Completed Contract Method...
44. FIFO: EI = newest purchases - LIFO: EI = oldest purchases - Avg. Costs: EI = Available for sale/Units - Specific ID: high value items (cars - diamonds etc)
IFRS/US GAAP Frameworks: Recognition of Elements...
Inventory Cost Flow Methods...
Cash flow ratios
Intangible Assets
45. 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
Defined Benefit Obligations (DBO)
Funded Status US GAAP & IFRS
Operating Lease
CFO - Direct method
46. Selecting accounting principles to distort results - Structuring transactions to achieve a desired outcome - Using aggressive or unrealistic estimates and assumptions - Exploiting the intent of the accounting principle
Horizontal Common Size Statements...
Unusual OR Infrequent items...
Low Quality Earnings is result of...
CFO - Direct method
47. 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
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Intercorporate Investment: < 20% votes...
FIFO after-tax profit =
IASB - Goals
48. Tax Rate down: DTL down -> Inc. Tax Exp down -> NI up - DTA down -> Inc. Tax Exp up -> NI down
Defined Benefit Obligations (DBO)
Simple capital structure
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Inventory Cost Flow Methods...
49. I/S and B/S - Each line is relative to base year
Auditor/Audit Opinion
Cash Conversion Cycle =
Horizontal Common Size Statements...
Operating vs. Non-operating Income
50. FASB & IASB -LT projects under contract - reliable estimates of revenue - cost and completion time -Rev - exp and profit are recognized in proportion to total cost incurred to date - divided by total expected cost.
3 C's for Credit Analysis...
The 4 Qualitative Characteristics of IFRS
% of Completion
Finance (capital) Lease criteria (under US GAAP)