SUBJECTS
|
BROWSE
|
CAREER CENTER
|
POPULAR
|
JOIN
|
LOGIN
Business Skills
|
Soft Skills
|
Basic Literacy
|
Certifications
About
|
Help
|
Privacy
|
Terms
|
Email
Search
Test your basic knowledge |
Advanced Financial Reporting And Analysis
Start Test
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
.
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. Depreciation exp = (cost - accum depre)/useful life x 2 - Does NOT use residual value but depreciation stops when residual value has been reached - reduce EBIT - NI - Assets - Equity and decrease ROA & ROE
Cost recovery method...
Steps of F/S Analysis
Unusual OR Infrequent items...
Double-decline balance (DDB)
2. 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)
The 4 Qualitative Characteristics of IFRS
CFO - Indirect method steps...
Auditor/Audit Opinion
Add/ Sub changes to related b/s operating accounts
3. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Cash Flow From Operations (CFO) - IFRS
% of Completion
Lessor Accounting Capital Lease: Sales-Type Lease
Operating vs. Non-operating Income
4. A company can issue securities to certain qualified buyers without registering the securities with the SEC - but must notify the SEC that it intends to do so.
Free Cash Flow to the Firm - FCFF
Form 144...
Inventory Cost Flow Methods...
CFO - Indirect method steps...
5. 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.
Impact on the Cash Flow of a Zero Coupon Bond...
Units of Production Method
Gross Reporting of Revenue
The report format of B/S
6. ROE = (NI/EBT)x(EBT/EBIT)x(EBIT/Rev)x(Rev/Asset)x(Asset/Eqty) or (tax burden)x(int. burden)x(EBITmargin)x(Aset TO)x(Fin Lvg)
Extended DuPont Equation...
CFO - Indirect method steps...
Finance (capital) Lease criteria (under US GAAP)
Warning Signs of Earnings Manipulation
7. Inventory TO = COGS / Avg. Inventory - LIFO = Higher - FIFO = Lower - DOH = 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.) - LIFO = lower days - FIFO = higher days - Gross Profit margin = Gross profit/ revenues - LIFO = lower - FIFO = higher
Ratios that directly affect choice of Inventory Account...
Analyzing Effective Tax Rate Reconciliation
B/S - short-term investments
B/S - Long-lived assets
8. 1) Valuation; 2) Standard setting; 3) Measurement
Barriers to a single framework...
Cost recovery method...
Impact on the B/S of a Premium Bond...
Impact on the Cash Flow of a Premium Bond...
9. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
IFRS: Presentation Requirements
Inv. Valuation reporting Inventory ABOVE costs...
days of inv. on hand =
Effects of Lease Classification on Ratios - Finance Lease
10. 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.
Capitalization of Interest...
Effective Tax Rate
FIFO ending inventory =
Fraud Triangle - 2) Opportunity
11. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
% of Completion
Diluted EPS
# of days payable =
Cash Flow From Operations (CFO) - IFRS
12. 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
Tax Loss Carryforward...
Revaluation above historic cost...
B/S - short-term investments
Convergence IFRS/US GAAP...
13. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
CFO - Indirect method steps...
Form DEF-14A...
Measurement of A & L disclosure in footnotes
The account format of B/S
14. 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
Finance (capital) Lease criteria GAAP vs. IFRS
Tax base on a liability
Financial Assets: US GAAP/Amortized at Cost
Comprehensive income...
15. Adjustments Involves erros or new accounting standards - Resate prior period - Disclose nature and effect on NI - Errors may indicate weakness in internal controls
Financial Assets: US GAAP/Amortized at Cost
Defined Benefit Plans
Types of accounting changes: prior period adjustments
Measurement of A & L disclosure in footnotes
16. Beginning Inv. (BI) + Purchases (P) = Available for Sale - Available for sale - COGS = Ending Inventory (EI)
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
days of inv. on hand =
Ending Inventory =
FASB - Harmonization
17. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate
Valuation Allowance...
Warning Signs of Earnings Manipulation
Sources of Differences: Permanent
Unusual OR Infrequent items...
18. Stock options - Warrants - Convertible debt - Convertible preferred stock
Analysis: Market Value of Debt
Impairments recognition (GAAP)
Horizontal Common Size Statements...
Potentially Dillutive Securities
19. US 1) Financial Accounting Standards Board; 2) Standards form GAAP; 3) Aims - useful - relevant - reliable - consistent and comparable; 4) SEC deems FASB standard authoritative
FASB
Calculate dividends declared...
Balance Sheet
B/S - investments
20. 1) Diff tax rate in diff. tax jurisdictions (countries) (continuous)2) Permanent tax differences: tax credit - tax-exempt income - nondeductible expenses - & tax diff between capital gains and operating income. (continuous) 3)in tax rates and legisl
Units of Production Method
Analyzing Effective Tax Rate Reconciliation
Operating Risk Ratios...
Finance (capital) Lease criteria GAAP vs. IFRS
21. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.
MD&A contains...
The best indicator of overstating its profits is...
IFRS/US GAAP Frameworks: F/S elements...
Financial Adj to Facilitate Comparison...
22. CV of Op. Inc = std dev. EBIT/ Mean EBIT - CV of Revenue: std. dev Rev/ mean Rev. - Operating Leverage = %chg in EBIT/ %chg in Sales
Intangibles under IFRS...
Impact on the Cash Flow of a Premium Bond...
Income Statement
Operating Risk Ratios...
23. Reported BELOW the line. Operations mgmt has decided to dispose of but: 1) has not yet done so or 2) did so in CY after it generated profit/(loss) Must be physicallly and operationally distinct from firm. Analyst must determine effects on future inco
Net Periodic Benefit Costs
Motivation to Understate Assets/Overstate Liabilities
Discontinued Operations...
Tax base on a liability
24. Lost sales from stock outs
FIFO is appropriate
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Asset Capitalization
The account format of B/S
25. 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
DBO Funded Status =
Cost included in Inventory on b/s...
Impact on the B/S of a Par Bond...
Financial Ration based on B/S: Liquidity Ratios
26. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
Asset Revaluation: IFRS
IFRS Revenue Recognition
Cash flow ratios
Intercorporate Investment: 20% - 50% votes...
27. 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)
IFRS/US GAAP Frameworks: objective of F/S
Fraud Triangle - 2) Opportunity
Taxation Disclosure Requirements
CFO - Direct/Indirect method
28. Outflow - (bringing bond DOWN to par)
Calculate dividends declared...
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Impairments recognition (IFRS)
Valuation allowance
29. Funds from Operations to debt = NI adj for non cash items/ total debt - Free operating CF to Total Debt = CFO - Capex / total debt - Total Debt to EBITDA = total debt / EBITDA - Return on Capital = EBIT / Capital - Total debt to total debt + equity =
Sources of Differences: Temporary
Credit Analysis: Ratios
CFO - Direct method
Financial Liability: US GAAP/Fair Market Value
30. 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)
Credit Analysis: Ratios
Finance (capital) Lease criteria GAAP vs. IFRS
Intangible Assets
Component depreciation;
31. 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
B/S - Long-lived assets
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
IFRS Revenue Recognition
Footnote Finance Liability Disclosure
32. You.S. GAAP
Tax base of an asset
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
IFRS/US GAAP Frameworks: purpose of framework
Warning Signs of Earnings Manipulation
33. 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
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Form DEF-14A...
Installment Method...
Auditor/Audit Opinion
34. Ensure that information in f/s is useful to a wide range of users.
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
The objective of f/s is to...
B/S - Long-lived assets PP&E
Deferred Tax Liability: (DTL)
35. 1) understandability; 2) relevance; 3) reliability; and 4)comparability - No hierarchy
Financial Ration based on B/S: Liquidity Ratios
Cost included in Inventory on b/s...
The 4 Qualitative Characteristics of IFRS
Deferred Tax Asset: (DTA)
36. 1) Stretching A/P (increase in # days in payable) = 365/(AP T/O) = 365/(purchases/ Avg. AP)) 2) Financing payables (allows to great AP as CFF) 3) Securitizing A/are: (allows to recognize gains in I/S) 4) Income Tax Benefit from stock options 5) Buyba
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Common Size Statement
Vertical Common Size Statements...
B/S - Stockholders' Equity
37. 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
Form DEF-14A...
Roles of financial reporting & analysis include...
Impact on the Cash Flow of a Par Bond...
B/S - Long-lived assets PP&E
38. (net income - preferred dividends)/weighted average of common shares outstanding - only income from continuing operations is considered
Units of Production Method
BASIC EPS
Discontinued Operations...
Stock options: Use treasury stock method
39. 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
Inventory Systems...
Creative Cash Flows Accounting: Technique
Taxation Analyst Adjustments...
The 4 Qualitative Characteristics of IFRS
40. 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
Calculate dividends declared...
Impairments recognition (IFRS)
Free Cash Flow to Equity - FCFE
Simple capital structure
41. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Cost recovery method...
IFRS/US GAAP Frameworks: Recognition of Elements...
Sales Basis Revenue Recognitions
42. 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...
IOSCO
Impact on the Cash Flow of a Zero Coupon Bond...
Potentially Dillutive Securities
43. 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
Warning Signs of Earnings Manipulation
days of inv. on hand =
Antidilutive Securities
Roles of financial reporting & analysis include...
44. Divdends and share repurchases - Production and investment - M&A - New debt issuance - Payoff pattern and liquidation priority - Maintenance of assets used as collateral
DTA Issues
FIFO results in: (assuming inflationary period)
Activity Based Restrictions
Taxation Disclosure Requirements
45. 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
IASB - Goals
Straight-line depreciation (SL)
Impairments recognition (GAAP)
Warning Signs of Earnings Manipulation
46. Companies should not recognize revenue from barter transactions. The additional revenue is likely to improperly boost profits. While an unusually high sales-growth rate may indicate fraud - it could also indicate good management. It's a yellow flag -
Extended DuPont Equation...
The best indicator of overstating its profits is...
Revaluation below historic cost...
Installment Method...
47. Management turnover.
Analyst Treaments of DTL
days of sales o/s =
Asset Revaluation: IFRS
To investigate the stability of that structure - Kilgore would be best served by looking at...
48. Shows the performance of the company over a reporting period.
IFRS/US GAAP Frameworks: purpose of framework
Impact on the Cash Flow of a Discount Bond...
Income Statement
Asset Capitalization
49. Interest Expense = Amortization
Impact on the B/S of a Zero Coupon Bond...
Impact on the B/S of a Premium Bond...
ROE interpretation: if ROE is low...
Operating Risk Ratios...
50. 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
Dilutive Securities
Forecasting Financial Performance: Top Down Approach...
B/S - Long-lived assets PP&E
Cash Flow From Operations (CFO) - FASB