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Test your basic knowledge |
Advanced Financial Reporting And Analysis
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Study First
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. [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
Double-decline balance (DDB)
Calculate dividends declared...
Operating Risk Ratios...
Diluted EPS
2. GAAP: shown as a separate prepaid asset and amortized - IFRS: Deducted from proceeds and liability therefore effective interest rate is HIGHER under IFRS than GAAP.
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Form DEF-14A...
Bond Issuance Cost under GAAP/IFRS
Market Value (GAAP)...
3. Inflow - (bringing bond UP to par)
days of sales o/s =
IFRS/US GAAP Frameworks: F/S elements...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
What is the economic substance of financial (capital) lease?
4. 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
Financial Liability: US GAAP/Fair Market Value
Impairments recognition (GAAP)
Sustainable Growth
MD&A contains...
5. 1)DTL - DTA - valuation allowance - Net ? in valutaion allowance over the period 2) unrecognized DTL or undistributed earning from subsidiaries & JVs 3) Current yr tax effect of each type of temp difference 4)Components of Inc Tax Expense 5)Tax loss
FIFO ending inventory =
Taxation Disclosure Requirements
Tax Loss Carryforward...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
6. 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
From creditor POV: Int. Coverage;
Free Cash Flow to Equity - FCFE
Balance Sheet
Net Periodic Benefit Costs
7. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates
Calculate dividends declared...
Segment Reporting
Measures of Operating Performance - Efficiency Ratios...
Sources of Differences: Temporary
8. 1) Consider the growth rate and capital spending levels when determining whether temp diff due to accelerated depre will reverse 2) Look for cumulative differences due to asset impairments and post-retirement benefits 3) Restructuring charges can c
Impairments recognition (IFRS)
Free Cash Flow -CFO
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Implication for Analysts: Be aware of differences in tax reconcilation between periods
9. 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
Financial Ratios based on B/S: Solvency (Coverage)
Under Completed Contract Method...
Sarbanes-Oxley Management Report...
Sustainable Growth
10. 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.
Screening for Potential Equity Investment: Criteria
Barriers to a single framework...
B/S - investments
Form 144...
11. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
Financial Adj to Facilitate Comparison...
Units of Production Method
IFRS/US GAAP Frameworks: Recognition of Elements...
Measures of Operating Performance - Efficiency Ratios...
12. 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
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
4 General Categories for Creditworthiness/Capacity...
Financial Ration based on B/S: Liquidity Ratios
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
13. 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
B/S - short-term investments
Intercorporate Investment: < 20% votes...
Balance Sheet - formats
Roles of financial reporting & analysis include...
14. 365/(AP T/O) = 365/(purchases/ Avg. AP)
Sustainable Growth
# of days payable =
Free Cash Flow to the Firm - FCFF
FASB
15. 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
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Convergence IFRS/US GAAP...
Net Reporting of Revenue
Form 8-K...
16. Interest Expense = Coupon + Amortization = PV of future CF x market yield @ issuance
Impact on the B/S of a Discount Bond...
Analyst Treaments of DTL
IFRS/US GAAP Frameworks: purpose of framework
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
17. 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.
Financial Lease Reporting
Cash Flow From Operations (CFO) - FASB
Ending Inventory =
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
18. US 1) Financial Accounting Standards Board; 2) Standards form GAAP; 3) Aims - useful - relevant - reliable - consistent and comparable; 4) SEC deems FASB standard authoritative
IASB - Goals
Finance (capital) Lease criteria (under US GAAP)
FASB
IASB
19. Depreciation exp = (cost-residual value)/ useful life
Intercorporate Investment: 20% - 50% votes...
Screening for Potential Equity Investment: Criteria
Straight-line depreciation (SL)
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
20. Same as other ratios using NI in this case substitut NI for CFO.
Cash flow ratios
Complex Capital Structure
LIFO is appropriate
Impact on the B/S of a Par Bond...
21. 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:
Impact on the Cash Flow of a Zero Coupon Bond...
Depreciation Methods...
CFO - Indirect method steps...
Sources of Differences: Permanent
22. 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
Installment Method...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Types of accounting changes: prior period adjustments
The account format of B/S
23. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Sales Basis Revenue Recognitions
CFO - Direct/Indirect method
Financial Assets: US GAAP/Fair Market Value
Impact on the B/S of a Premium Bond...
24. 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
CFO Disclosure requirement...
Net Realizable Value (NRV) (IFRS)
Convergence IFRS/US GAAP...
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
25. CFO = NI - means high quality of earnings but may be affect by the stage of business cycle and firm's life cycle - CFO > NI - means premature recognition of revenue or delayed recognition of expenses.
Dilutive Securities
CFO Analysis...
FASB
Taxation Analyst Adjustments...
26. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
IOSCO
Impact on the Cash Flow of a Par Bond...
Reasons to Lease...
Calculate dividends declared...
27. Refers to changes from one GAAP method or IFRS method to another IFRS & US GAAP require prior year data shown in f/s to be adjusted.
IFRS Revenue Recognition For Service
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Impairments recognition (IFRS)
Types of accounting changes: accounting principle
28. 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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29. Research = Expensed Development may be capitalized when the following critera is met: (ie if in the Development stage and NOT research stage) 1) process is clearly identified 2) Cost can be clearly idenfified 3) Technical feasibility established 4) M
Defined Contribution Plans
Trade-Offs Qualitative Characteristics of IFRS
LIFO results in: (assuming inflationary period)
Intangibles under IFRS...
30. 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)
Taxation: Income Tax Expense
Effects of Lease Classification on F/S - Finance Lease
Tax Loss Carryforward...
An Increase in the Valuation Allowance Account...
31. Income subject to tax as per Tax Return
Taxable Income
Analyst Treaments of DTL
Straight-line depreciation (SL)
Bond Issuance Cost under GAAP/IFRS
32. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability
Activity Based Restrictions
To investigate the stability of that structure - Kilgore would be best served by looking at...
Taxation Analyst Adjustments...
Defined Benefit Plans
33. 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
Income Statement
IFRS Revenue Recognition
Effects of Lease Classification on F/S - Finance Lease
Common Size Statement
34. 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 -
The best indicator of overstating its profits is...
Segment Reporting
Cost recovery method...
Dilutive Securities
35. GAAP: more quantitative rules - IFRS: more qualitative approach based on whether the risks and reward of the asset have tranferred.
Finance (capital) Lease criteria GAAP vs. IFRS
Tax Loss Carryforward...
Impact on the B/S of a Discount Bond...
Capitalization of Interest...
36. 1) Character: Mgmt reputation and history of repayment 2) Collateral: ability to pledge specific collateral reduces lender risk 3) Capacity: ability to replay debt. requires LT view of firms prospect.
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37. 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)
Taxation: Income Tax Expense
Add/ Sub changes to related b/s operating accounts
Financial Assets: US GAAP/Fair Market Value
The 4 Qualitative Characteristics of FASB...
38. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
To investigate the stability of that structure - Kilgore would be best served by looking at...
Sales Basis Revenue Recognitions
FASB - Harmonization
3 C's for Credit Analysis...
39. Ineffective corp. ethical values; non-financial managers invovled in selection of accounting principles/estimates; History of violation; Focus on stock price and earning trends; Commitment to unrealistic/aggressive forecasts; Failure to correct known
Fraud Triangle - 3) Attitude/rationalization
Balance Sheet
Cash Conversion Cycle =
B/S - Long-term Liabilities
40. Higher share price - Lower borrowing cost - Higher incentive compensation
Creative Cash Flows Accounting: Motivation
days of sales o/s =
Operating Lease
FIFO is appropriate
41. Current Ratio (CA/CL): lower - Work. Cap (CA -CL): Lower - Asset TO: (Sales/TA): Lower - ROA (EAT/TA): Lower - ROE (EAT/E): Lower - Debt/Equity: Higher - Since Int. exp + depre > lease pymt in the early years. This decreases NI - and Profitability ra
Discontinued Operations...
Effects of Lease Classification on Ratios - Finance Lease
IASB
Free Cash Flow -CFO
42. 1) Credit Scoring (CF Forecast) 2) Equity Investment screening (cutoff values)
Screening for Potential Equity Investment: Criteria
Unusual OR Infrequent items...
Discontinued Operations...
Forecasting Financial Performance: Application
43. 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
Financial Liability: US GAAP/Fair Market Value
The report format of B/S
Impairments recognition (IFRS)
Creative Cash Flows Accounting: Motivation
44. 1) Valuation; 2) Standard setting; 3) Measurement
B/S - investments
Analyst Treaments of DTL
Barriers to a single framework...
Operating vs. Non-operating Income
45. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Units of Production Method
Depreciation Methods...
MD&A contains...
Balance Sheet
46. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
The 4 Qualitative Characteristics of IFRS
MD&A contains...
Inv. Valuation reporting Inventory ABOVE costs...
Add/ Sub changes to related b/s operating accounts
47. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.
Motivation to Understate Assets/Overstate Liabilities
Intercorporate Investment: 20% - 50% votes...
Return on total capital (ROTC)...
Sustainable Growth
48. Management turnover.
To investigate the stability of that structure - Kilgore would be best served by looking at...
Fraud Triangle
The objective of f/s is to...
Calculate dividends declared...
49. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
Inventory Systems...
days of inv. on hand =
An Increase in the Valuation Allowance Account...
Cash Flow From Operations (CFO) - IFRS
50. Interest expense = Coupon rate
3 C's for Credit Analysis...
Impact on the B/S of a Par Bond...
CFO Disclosure requirement...
Deferred Tax Asset: (DTA)