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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. Days of sales o/s + days of inv. on hand - # of days payable (shorter the better)
Diluted EPS
Effects of Lease Classification on Ratios - Finance Lease
Cash Conversion Cycle =
Cost included in Inventory on b/s...
2. 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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3. 1) Basis for measurement; 2) carrying value of inventory by category; 3) Amount of inventory carried at FV less cost to sell 4) Write-downs & reversals (discussion of circumstance that led to reversal); 5) Inventories pledged as collateral for liabil
From creditor POV: Int. Coverage;
Measurement of A & L disclosure in footnotes
Return on Assets ROA...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
4. Tax liability based on taxable income as per TAX Report/RETURN
Potentially Dillutive Securities
Common Size Statement
Taxation: Tax Payable
Financial Liability: US GAAP/Amortized at Cost
5. 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)
Reasons to Lease...
The best indicator of overstating its profits is...
Tax Loss Carryforward...
Net Periodic Benefit Costs
6. 1) held-to-maturity: @ amortized cost (i.e Bonds) 2) trading: @ fair value through P&L @ fair mkt value - unrealized g/(l) are recognized on the I/S. 3) available-for-sale: @ fair mkt value - unrealized g/(l) are NOT recognized on the I/S - instead r
Market Value (GAAP)...
IFRS/US GAAP Frameworks: Measurement of Elements...
Cost recovery method...
B/S - short-term investments
7. 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
Form 8-K...
LIFO results in: (assuming inflationary period)
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Intercorporate Investment: < 20% votes...
8. 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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9. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
DTA Issues
Low Quality Earnings is result of...
Complex Capital Structure
Types of accounting changes...
10. Lost sales from stock outs
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Common Size Statement
Types of accounting changes: accounting principle
What is the economic substance of financial (capital) lease?
11. Actual cash outflow for taxes paid during current period
Units of Production Method
Inv. Valuation reporting Inventory ABOVE costs...
Income Tax Paid...
Component depreciation;
12. 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
Form DEF-14A...
Extended DuPont Equation...
Impairments recognition (IFRS)
IFRS Revenue Recognition
13. Both: General agreement on objectives; focus on wide range of users - IASB: One objective for all users - FASB: Separate objectives for business entities and non-business entities.
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Credit Analysis: Ratios
IFRS/US GAAP Frameworks: objective of F/S
Income Statement
14. 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
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
IFRS/US GAAP Frameworks: Measurement of Elements...
Creative Cash Flows Accounting: Technique
Creative Cash Flows Accounting: Motivation
15. 1) Incentive/Pressure (the motive to commit fraud) 2) Opportunity (exists with weak internal controls) 3) Attitude/rationalization (mindset that fraud is justified)
Financial Liability: US GAAP/Amortized at Cost
Impairments recognition (GAAP)
Fraud Triangle
B/S - investments
16. 1) when differences are expected to REVERSE and reslut in future tax payment - treate DTL as a LIABILITY in calculating leverage ratios 2) when differences are NOT expected to REVERSE and result in future tax payment - treat DTL as EQUITY in calculat
Ending Inventory =
Analyst Treaments of DTL
Operating vs. Non-operating Income
Deferred Tax Liability: (DTL)
17. 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.
Valuation allowance
Impact on the Cash Flow of a Premium Bond...
B/S - Long-term Liabilities
Disclosure for each segment...
18. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
Vertical Common Size Statements...
Asset Revaluation: IFRS
Under Completed Contract Method...
Unusual OR Infrequent items...
19. 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 =
Dilutive Securities
Ending Inventory =
Credit Analysis: Ratios
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
20. Interest Expense = Amortization
Impact on the B/S of a Zero Coupon Bond...
4 General Categories for Creditworthiness/Capacity...
Fraud Triangle
Financial Implications of Capitalizing...
21. (net income - preferred dividends)/weighted average of common shares outstanding - only income from continuing operations is considered
Cash Flow From Operations (CFO) - FASB
BASIC EPS
To investigate the stability of that structure - Kilgore would be best served by looking at...
IASB
22. LIFO after-tax profit + (change in LIFO reserve)(1 - t)
IFRS: Presentation Requirements
IFRS/US GAAP Frameworks: Measurement of Elements...
FIFO after-tax profit =
Types of accounting changes: accounting estimate
23. Efficient inventory managment
The 4 Qualitative Characteristics of FASB...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Financial Ration based on B/S: Liquidity Ratios
Inventory mangement: High T/O (low DOH) and sales growth above industry average
24. 365/(AP T/O) = 365/(purchases/ Avg. AP)
# of days payable =
Inventory Systems...
DTA/DTL: Effect on Net Income when Tax Rate decreases...
IFRS/US GAAP Frameworks: Recognition of Elements...
25. Carrying amount of the liability minus the amount that will be deductible in the future.
Tax base on a liability
IFRS Revenue Recognition
Ending Inventory =
Warning Signs of Earnings Manipulation
26. 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
The best indicator of overstating its profits is...
Low Quality Earnings is result of...
Tax Loss Carryforward...
Antidilutive Securities
27. 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
Cash flow ratios
CFO Disclosure requirement...
Barter (IASB & FASB)
CFI Analysis...
28. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
LIFO is appropriate
An Increase in the Valuation Allowance Account...
Antidilutive Securities
Impact on the B/S of a Discount Bond...
29. 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
Calculate dividends declared...
Sarbanes-Oxley Management Report...
Valuation Allowance...
Impairments recognition (GAAP)
30. 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.
Straight-line depreciation (SL)
Form 144...
IFRS: Presentation Requirements
% of Completion
31. 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)
Impact on the Cash Flow of a Zero Coupon Bond...
Tax Loss Carryforward...
Add/ Sub changes to related b/s operating accounts
FASB
32. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.
Creative Cash Flows Accounting: Motivation
IFRS/US GAAP Frameworks: F/S elements...
B/S - investments
Implication for Analysts: Be aware of differences in tax reconcilation between periods
33. 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
Free Cash Flow to Equity - FCFE
Financial Ratio based on I/S...
Fraud Triangle - 3) Attitude/rationalization
Installment Method...
34. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same
Sources of Differences: Permanent
Comprehensive income...
Effects of Lease Classification on F/S - Operating Lease
Financial Ratios based on B/S: Solvency ratio
35. Shows the performance of the company over a reporting period.
Income Statement
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Net Periodic Benefit Costs
Comprehensive income...
36. To improve liquidity and leverage ratios
Double-decline balance (DDB)
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Motivation to Overstate Assets/Understate Liabilities
Analyst Treaments of DTL
37. 1) understandability; 2) relevance; 3) reliability; and 4)comparability - No hierarchy
Cash Flow: Logic (A = L + E)
The 4 Qualitative Characteristics of IFRS
The objective of f/s is to...
Net Realizable Value (NRV) (IFRS)
38. '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
Market Value (GAAP)...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Cash Flow From Investing (USA) (Assets)
Intangibles under IFRS...
39. Income subject to tax as per Tax Return
Sources of Differences: Temporary
Tax base of an asset
Taxable Income
Cash Flow From Financing (USA) (Source of Cash)
40. 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 -
B/S - short-term investments
Taxation Analyst Adjustments...
The best indicator of overstating its profits is...
Tax Loss Carryforward...
41. Depreciation exp = (cost - residual value) x (# units produced / total expected to produce)
ROE interpretation: if ROE is low...
Trade-Offs Qualitative Characteristics of IFRS
Impact on the B/S of a Discount Bond...
Units of Production Method
42. Return on Total Equity = NI/ Avg. Total Equity - Return on C/E = NI - Pref. Div/ Avg. Common Equity
Types of accounting changes: accounting estimate
Analyst Treaments of DTL
Disclosure for each segment...
Return on Equity (ROE)...
43. 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
Operating Risk Ratios...
Steps of F/S Analysis
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Depreciation Methods...
44. 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.
Tax base on a liability
Asset Capitalization
Taxation Disclosure Requirements
Types of accounting changes: accounting principle
45. Means that at least ONE of the following is true: Company has poor profit margin; Company has poor asset TO; Company is underleveraged
Bond Issuance Cost under GAAP/IFRS
ROE interpretation: if ROE is low...
B/S - short-term investments
Add/ Sub changes to related b/s operating accounts
46. Current Ratio (CA/CL): Higher - Work. Cap (CA -CL): Higher - Asset TO: (Sales/TA): Higher - ROA (EAT/TA): Higher - ROE (EAT/E): Higher - Debt/Equity: Lower - Understates Leverage ratios (b/c not recognized as a liability) - Overstates Coverage ratios
Effects of Lease Classification on Ratios - Operating Lease
Vertical Common Size Statements...
Gain/(loss) on bond early retirement: (derecognition of debt)
Operating Lease
47. 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
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
SEC guidance for Revenue Recognition
Common Size Statement
48. Assets - liabilities - and equity are presented in a single column.
Financial Assets: US GAAP/Amortized at Cost
The report format of B/S
FIFO is appropriate
Types of accounting changes: accounting principle
49. Meet Analyst Expectations - Meet debt covenants - Incentive compensation
Extended DuPont Equation...
Gross Reporting of Revenue
Motivation to Over-report Earnings
Finance (capital) Lease criteria GAAP vs. IFRS
50. 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
Financial Ration based on B/S: Liquidity Ratios
Gain/(loss) on bond early retirement: (derecognition of debt)
Effects of Lease Classification on F/S - Operating Lease
Form 8-K...