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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. Actual cash outflow for taxes paid during current period
Antidilutive Securities
IASB
Income Tax Paid...
Creative Cash Flows Accounting: Technique
2. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
IFRS Revenue Recognition For Service
Double-decline balance (DDB)
Fraud Triangle - 2) Opportunity
CFO - Direct method
3. LIFO after-tax profit + (change in LIFO reserve)(1 - t)
LIFO is appropriate
Inventory Systems...
Steps of F/S Analysis
FIFO after-tax profit =
4. 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
Financial Ratio based on I/S...
Impact on the B/S of a Zero Coupon Bond...
Effects of Lease Classification on F/S - Finance Lease
Dilutive Securities
5. 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
Financial Implications of Capitalizing...
Reasons to Lease...
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Comprehensive income...
6. EBIT/ Avg. total capital - Total capital includes: debt capital - so int. is aded back to NI
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Stock options: Use treasury stock method
Deferred Tax Liability: (DTL)
Return on total capital (ROTC)...
7. Meet Analyst Expectations - Meet debt covenants - Incentive compensation
Motivation to Over-report Earnings
To investigate the stability of that structure - Kilgore would be best served by looking at...
Taxation Analyst Adjustments...
Asset Capitalization
8. 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
Sources of Differences: Permanent
SEC guidance for Revenue Recognition
Motivation to Under-report Earnings
9. Interest Expense = Amortization
Expensed Intangibles...
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Net Reporting of Revenue
Impact on the B/S of a Zero Coupon Bond...
10. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Unusual OR Infrequent items...
Return on total capital (ROTC)...
Cost included in Inventory on b/s...
Defined Contribution Plans
11. 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
Activity Based Restrictions
Free Cash Flow -CFO
The account format of B/S
Impairments recognition (GAAP)
12. Trade relief - Contingent consideration - Union concessions
DTA Issues
Motivation to Under-report Earnings
IFRS/US GAAP Frameworks: objective of F/S
Disclosure for each segment...
13. 1) Credit Scoring (CF Forecast) 2) Equity Investment screening (cutoff values)
Forecasting Financial Performance: Application
Financial Assets: US GAAP/Fair Market Value
Impairments recognition (GAAP)
B/S - Long-term Liabilities
14. Taxes payable + chg deferred Tax as per Financial Report
Unusual OR Infrequent items...
Low Quality Earnings is result of...
DBO Funded Status =
Taxation: Income Tax Expense
15. Lost sales from stock outs
LIFO is appropriate
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Comprehensive income...
Analyst Treaments of DTL
16. 1st: Net Income - dividends declared = chg in are/E - Then: Dividends declared +/- chg dividends payable = cash dividends paid.
Cash Flow From Operations (CFO) - IFRS
Calculate dividends declared...
Intercorporate Investment: < 20% votes...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
17. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
Cash Flow From Operations (CFO) - FASB
Credit Rating Process...
days of inv. on hand =
The report format of B/S
18. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Funded Status US GAAP & IFRS
Taxation: Income Tax Expense
The report format of B/S
Trade-Offs Qualitative Characteristics of IFRS
19. 1) B/S asset increased to FMV 2) Increase above original cost to equity via revaluation surplus account (comprehensive Income)
3 C's for Credit Analysis...
IFRS Revenue Recognition
Motivation to Overstate Assets/Understate Liabilities
Revaluation above historic cost...
20. 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)
Add/ Sub changes to related b/s operating accounts
IOSCO
Taxation Analyst Adjustments...
Net Periodic Benefit Costs
21. You.S. GAAP
Asset Revaluation: IFRS
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Bond Issuance Cost under GAAP/IFRS
CFI Analysis...
22. 1) Intention to hold >1 year (e.g. debt or equity) valued @ cost or mkt value 2) Equity accounted investments
3 C's for Credit Analysis...
Fraud Triangle - 1) Incentive/Pressure
B/S - investments
Valuation allowance
23. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Finance (capital) Lease criteria GAAP vs. IFRS
Financial Ratios based on B/S: Solvency (Coverage)
Impairments recognition (GAAP)
CFO - Direct/Indirect method
24. 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
Dilutive Securities
Calculate dividends declared...
Convergence IFRS/US GAAP...
Market Value (GAAP)...
25. Ensure that information in f/s is useful to a wide range of users.
Potentially Dillutive Securities
Inventory mangement: High T/O (low DOH) and sales growth above industry average
The objective of f/s is to...
Sources of Differences: Permanent
26. ROE = (NI/Sales) x (Sales/Assets) x (Assets/Equity) or ROE= Net Profit Margin x Asset TO x Leverage Ratio
IFRS/US GAAP Frameworks: objective of F/S
The account format of B/S
Fraud Triangle
Traditional DuPont Equation...
27. More than a third of Maxwell's total sales go to its own consolidated subsidiaries High levels of related-party transactions are worrisome - particularly when those parties are not audited. But transactions within the company between subsidiaries con
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28. 1) is a contra asset account used to reduce the value of a DTA - 2) it is used to reduce the asset when future taxable income is deemed to be insefficient to fully use the DTA.
Funded Status US GAAP & IFRS
Form 144...
BASIC EPS
Valuation allowance
29. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates
From creditor POV: Int. Coverage;
Intercorporate Investment: > 50% votes...
Sources of Differences: Temporary
Forecasting Financial Performance: Application
30. (net income - preferred dividends)/weighted average of common shares outstanding - only income from continuing operations is considered
BASIC EPS
SEC guidance for Revenue Recognition
Impact on the Cash Flow of a Premium Bond...
Stock options: Use treasury stock method
31. EU & US 1) Int'l Org. of Securities Commission; 2) Goal: uniform regulation; 3) Core objectives: Protecting investor - Fair - transparent - efficient markets - Reduction of systematic risk
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
IOSCO
Defined Benefit Obligations (DBO)
32. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate
Analyzing Effective Tax Rate Reconciliation
Double-decline balance (DDB)
Sources of Differences: Permanent
CFI Analysis...
33. Cash Flow available for distribution to the c/s; after all obligations have been paid. CFO - fixed capital investment + net debt increase or CFO - net cap expenditure + net borrowings
Sources of Differences: Permanent
Free Cash Flow to Equity - FCFE
Form DEF-14A...
Implication for Analysts: Be aware of differences in tax reconcilation between periods
34. BV - cash paid = gain/(loss) + any unamortized issue costs (US only) = Gain/Loss on repurchase [I/S as continuing operations)
The 4 Qualitative Characteristics of FASB...
Gain/(loss) on bond early retirement: (derecognition of debt)
FASB
Motivation to Overstate Assets/Understate Liabilities
35. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Fraud Triangle
FASB
Financial Adj to Facilitate Comparison...
Measures of Operating Performance - Efficiency Ratios...
36. + Service Costs (recurring costs (actual)) - + Interest Costs (recurring costs (actual)) - - Expected return on plan assets (smoothed event) - +/- Amort of (gains) and losses (smoothed event) - +/- Amort of prior service costs* (smoothed event) - +/-
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
3 C's for Credit Analysis...
Measurement of A & L disclosure in footnotes
Net Periodic Benefit Costs
37. NRV = Est. selling cost - Est. cost of complition - selling costs
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
IASB
Net Realizable Value (NRV) (IFRS)
FIFO ending inventory =
38. Assets - liabilities - and equity are presented in a single column.
Types of accounting changes...
The report format of B/S
Steps of F/S Analysis
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
39. 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
Impairments recognition (IFRS)
Gross Reporting of Revenue
An Increase in the Valuation Allowance Account...
Creative Cash Flows Accounting: Motivation
40. Pd after more than 1 year - notes & bonds: at PV of future CF pymets - Capital leases - Provisions - Deferred tax
Defined Benefit Plans
Creative Cash Flows Accounting: Technique
B/S - Long-term Liabilities
Valuation Allowance...
41. Interest expense = Coupon rate
Impact on the B/S of a Par Bond...
Impact on the Cash Flow of a Zero Coupon Bond...
Financial Liability: US GAAP/Fair Market Value
Calculate dividends declared...
42. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is higher and CFF is lower
Roles of financial reporting & analysis include...
Impact on the Cash Flow of a Discount Bond...
Impact on the B/S of a Par Bond...
Financial Implications of Capitalizing...
43. 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.
IASB - Goals
Footnote Finance Liability Disclosure
The 4 Qualitative Characteristics of FASB...
Fraud Triangle - 2) Opportunity
44. 1) Scale & Diversification - 2) Operational Efficiency - 3) Margin Stability - 4) Leverage
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Market Value (GAAP)...
Sources of Differences: Temporary
4 General Categories for Creditworthiness/Capacity...
45. 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...
Effects of Lease Classification on Ratios - Operating Lease
Component depreciation;
Footnote Finance Liability Disclosure
46. 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
Effective Tax Rate
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Under Completed Contract Method...
47. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
Effects of Lease Classification on F/S - Operating Lease
An Increase in the Valuation Allowance Account...
Income Statement
CFO Disclosure requirement...
48. 1) Evidence of an arrangement; 2) Completion of earnings process; 3) Price is determined or determinable; 4) Assurance of payment
SEC guidance for Revenue Recognition
The 4 Qualitative Characteristics of IFRS
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Impact on the B/S of a Par Bond...
49. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes
CFO - Indirect method steps...
Types of accounting changes: accounting estimate
Warning Signs of Earnings Manipulation
Horizontal Common Size Statements...
50. 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
SEC guidance for Revenue Recognition
Cash Flow From Operations (CFO) - FASB
Cash Flow: Logic (A = L + E)