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. 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
Discontinued Operations...
Capitalized Intangibles...
Fraud Triangle - 2) Opportunity
Simple capital structure
2. = LIFO ending inventory + LIFO reserve FIFO after-tax profit
Intangible Assets
FIFO ending inventory =
Barter (IASB & FASB)
4 General Categories for Creditworthiness/Capacity...
3. Cash collections less direct cash inputs less other cash outfllows
CFO - Indirect method steps...
Net Realizable Value (NRV) (IFRS)
CFO - Direct method
Cash Flow: Logic (A = L + E)
4. Replacement cost subject to: Upper limit = NRV - Loewr limit = NRV - normal profit margin
Intercorporate Investment: > 50% votes...
Operating Risk Ratios...
Barter (IASB & FASB)
Market Value (GAAP)...
5. Companies must file this form to disclose material events including significant asset acquisitions and disposals - changes in management or corporate governance - or matters related to its accountants - financial statements - or the markets on which
Form 8-K...
Financial Liability: US GAAP/Fair Market Value
4 General Categories for Creditworthiness/Capacity...
DTA Issues
6. EU 1) Int'l Accounting Standards Board; 2) Unified int'l frameworks of accounting standards (IFRS); 3) Addopted by EU in 2005
Impact on the B/S of a Zero Coupon Bond...
IFRS/US GAAP Frameworks: F/S elements...
IASB
Component depreciation;
7. Higher share price - Lower borrowing cost - Higher incentive compensation
Creative Cash Flows Accounting: Motivation
3 C's for Credit Analysis...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Effects of Lease Classification on Ratios - Operating Lease
8. 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)
Inventory Systems...
Reasons to Lease...
Cash Flow: Logic (A = L + E)
From creditor POV: Int. Coverage;
9. 1) Transparency; 2) Comprehensiveness; 3) Consistency
Fraud Triangle - 2) Opportunity
Impact on the Cash Flow of a Par Bond...
Characteristics of an effective framework
B/S - Long-term Liabilities
10. Working Capital = CA - CL - Working Capital TO = Rev/Avg. Working Capital - Fixed Asset TO = Rev/Avg Net Fixed Assets
IOSCO
Activity Ratios
Motivation to Over-report Earnings
Cost recovery method...
11. Shows the financial position of a firm AT A SINGLE POINT in time A = L + E.
4 General Categories for Creditworthiness/Capacity...
Defined Benefit Obligations (DBO)
Balance Sheet
Fraud Triangle - 3) Attitude/rationalization
12. EBIT/ Avg. total capital - Total capital includes: debt capital - so int. is aded back to NI
Return on total capital (ROTC)...
Double-decline balance (DDB)
Lessor Accounting Capital Lease: Sales-Type Lease
Bond Issuance Cost under GAAP/IFRS
13. Amount deductible in future tax return
Inventory Systems...
IFRS/US GAAP Frameworks: F/S elements...
Tax base of an asset
Stock options: Use treasury stock method
14. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Financial Liability: US GAAP/Fair Market Value
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Operating Risk Ratios...
Depreciation Methods...
15. (GAAP) Internally created intangibles 1) (R&D) are expensed 2) Advertising 3) Software (developed to establish feasibility)
Types of accounting changes: accounting estimate
Expensed Intangibles...
Cash Flow From Operations (CFO) - FASB
B/S - investments
16. 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
Under Completed Contract Method...
Form 8-K...
Expensed Intangibles...
IFRS/US GAAP Frameworks: F/S elements...
17. 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
Impact on the B/S of a Discount Bond...
Debt covenants
Comprehensive income...
Analyzing Effective Tax Rate Reconciliation
18. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
Market Value (GAAP)...
Deferred Tax Asset: (DTA)
B/S - Long-term Liabilities
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
19. 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.
Disclosure for each segment...
Net Periodic Benefit Costs
Complex Capital Structure
Financial Lease Reporting
20. For inventory that has a limited shelf life ex) Because the movies have a very limited shelf life and will greatly deteriorate in value with age - especially after the first year - FIFO is the most appropriate method of accounting for the movies for
ROE interpretation: if ROE is low...
Operating vs. Non-operating Income
FIFO is appropriate
CFO - Direct/Indirect method
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
Impairments recognition (GAAP)
Form DEF-14A...
Footnote disclosure of Reconciliation of opening and closing carrying values...
Characteristics of an effective framework
22. 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...
Financial Ration based on B/S: Liquidity Ratios
CFO Analysis...
IOSCO
23. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)
Impact on the Cash Flow of a Zero Coupon Bond...
Ending Inventory =
IASB - Goals
IFRS/US GAAP Frameworks: Measurement of Elements...
24. 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
Free Cash Flow to Equity - FCFE
Ratios that directly affect choice of Inventory Account...
Finance (capital) Lease criteria (under US GAAP)
25. Net income + non-cash charges - working cap investment
Antidilutive Securities
Valuation Allowance...
Defined Benefit Obligations (DBO)
Free Cash Flow -CFO
26. 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...
Intangible Assets
Roles of financial reporting & analysis include...
Creative Cash Flows Accounting: Motivation
27. 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
Return on Equity (ROE)...
FASB - Harmonization
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Forecasting Financial Performance: Application
28. Means that at least ONE of the following is true: Company has poor profit margin; Company has poor asset TO; Company is underleveraged
CFI Analysis...
Horizontal Common Size Statements...
ROE interpretation: if ROE is low...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
29. 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
Taxable Income
B/S - Stockholders' Equity
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
MD&A contains...
30. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
The 4 Qualitative Characteristics of IFRS
Finance (capital) Lease criteria (under US GAAP)
The report format of B/S
Cash Flow From Operations (CFO) - FASB
31. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
Impact on the Cash Flow of a Premium Bond...
Financial Ration based on B/S: Liquidity Ratios
An Increase in the Valuation Allowance Account...
Market Value (GAAP)...
32. A: Increase = use cash (-) - Decrease = source cash (+) - L: Increase = source cash (+) - Decrease = use of cash (-) - E: Increase = source cash (+) - Decrease = use of cash (-)
Taxation: Income Tax Expense
Cash Flow: Logic (A = L + E)
Motivation to Understate Assets/Overstate Liabilities
Implication for Analysts: Be aware of differences in tax reconcilation between periods
33. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Creative Cash Flows Accounting: Motivation
Tax base on a liability
Inventory Valuatoin (LCM)
CFO - Direct/Indirect method
34. LIFO after-tax profit + (change in LIFO reserve)(1 - t)
FIFO after-tax profit =
Impact on the B/S of a Par Bond...
ROE interpretation: if ROE is low...
Impairments recognition (GAAP)
35. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes
Operating vs. Non-operating Income
Trade-Offs Qualitative Characteristics of IFRS
The best indicator of overstating its profits is...
Types of accounting changes: accounting estimate
36. Ensure that information in f/s is useful to a wide range of users.
The objective of f/s is to...
Financial Liability: US GAAP/Fair Market Value
Effects of Lease Classification on Ratios - Finance Lease
Impact on the B/S of a Discount Bond...
37. 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 Ratios based on B/S: Solvency ratio
Measurement of A & L disclosure in footnotes
Depreciation Methods...
Financial Adj to Facilitate Comparison...
38. 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
Finance (capital) Lease criteria (under US GAAP)
IFRS/US GAAP Frameworks: purpose of framework
4 General Categories for Creditworthiness/Capacity...
Form 144...
39. 1) Incentive/Pressure (the motive to commit fraud) 2) Opportunity (exists with weak internal controls) 3) Attitude/rationalization (mindset that fraud is justified)
Defined Benefit Obligations (DBO)
Sarbanes-Oxley Management Report...
Fraud Triangle
FASB
40. 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.
% of Completion
Inventory mangement: High T/O (low DOH) and sales growth above industry average
FASB
B/S - Long-lived assets
41. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
Free Cash Flow -CFO
Gain/(loss) on bond early retirement: (derecognition of debt)
IFRS/US GAAP Frameworks: Recognition of Elements...
Valuation Allowance...
42. 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.
Measures of Operating Performance - Efficiency Ratios...
Income Statement
CFI Analysis...
Sales Basis Revenue Recognitions
43. 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
Extraordinary Items: Unusual AND Infrequent items...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Installment Method...
44. 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
B/S - Long-lived assets PP&E
Effects of Lease Classification on F/S - Operating Lease
Defined Benefit Obligations (DBO)
B/S - Long-term Liabilities
45. Assets - liabilities - and equity are presented in a single column.
Taxation Analyst Adjustments...
The report format of B/S
DTA Issues
Auditor/Audit Opinion
46. '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
Impairments recognition (IFRS)
Complex Capital Structure
Balance Sheet
Cash Flow From Investing (USA) (Assets)
47. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
Inv. Valuation reporting Inventory ABOVE costs...
Revaluation below historic cost...
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Tax base on a liability
48. Taxes payable + chg deferred Tax as per Financial Report
Taxation: Income Tax Expense
Analyzing Effective Tax Rate Reconciliation
IFRS/US GAAP Frameworks: purpose of framework
Convergence IFRS/US GAAP...
49. 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
Comprehensive income...
Defined Benefit Plans
Roles of financial reporting & analysis include...
Effects of Lease Classification on F/S - Finance Lease
50. 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.
Units of Production Method
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Balance Sheet
Form 144...