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Test your basic knowledge |
Advanced Financial Reporting And Analysis
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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. Trade relief - Contingent consideration - Union concessions
Footnote Finance Liability Disclosure
Units of Production Method
Impact on the B/S of a Discount Bond...
Motivation to Under-report Earnings
2. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
CFO Disclosure requirement...
Asset Revaluation: IFRS
Fraud Triangle - 2) Opportunity
IFRS: Presentation Requirements
3. 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
Motivation to Under-report Earnings
Warning Signs of Earnings Manipulation
Creative Cash Flows Accounting: Technique
Comprehensive income...
4. Profit is recognized only when it exceeds estimated total cost.
Cash Flow From Financing (USA) (Source of Cash)
Cost recovery method...
Barriers to a single framework...
days of sales o/s =
5. When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote - it also files the statement with the SEC as Form DEF-14A.
Form DEF-14A...
Operating Lease
IFRS/US GAAP Frameworks: F/S elements...
From creditor POV: Int. Coverage;
6. BV - cash paid = gain/(loss) + any unamortized issue costs (US only) = Gain/Loss on repurchase [I/S as continuing operations)
Impact on the Cash Flow of a Par Bond...
Taxation Disclosure Requirements
Gain/(loss) on bond early retirement: (derecognition of debt)
IFRS/US GAAP Frameworks: purpose of framework
7. Improve ROA and Asset TO Ratios - Report higher aquisition goodwill
Form 8-K...
Motivation to Understate Assets/Overstate Liabilities
Financial Ration based on B/S: Liquidity Ratios
Valuation Allowance...
8. Is more relevant than book value: Recent changes allow more liability to be recorded at FMV (IFRS & GAAP require disclosure of FMV) - Downward adj. in liability will Increase equity and decrease leverage ratio - Upward adj in liability will decrease
Traditional DuPont Equation...
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Analysis: Market Value of Debt
Motivation to Under-report Earnings
9. To improve liquidity and leverage ratios
B/S - short-term investments
Impact on the B/S of a Zero Coupon Bond...
Net Realizable Value (NRV) (IFRS)
Motivation to Overstate Assets/Understate Liabilities
10. 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
From creditor POV: Int. Coverage;
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Impact on the Cash Flow of a Discount Bond...
Inventory mangement: High T/O (low DOH) and sales growth below industry average
11. 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
Balance Sheet
# of days payable =
Installment Method...
12. 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
Revaluation above historic cost...
Cash Flow From Operations (CFO) - IFRS
Under Completed Contract Method...
Impact on the Cash Flow of a Par Bond...
13. Under GAAP 1) Purchased patentes - copyrights - franchises - licenses - brands - and trademarks 2) Direct response advertising 3) Goodwill arising from transactions - (Proceeds - FMV net assets required = goodwill) 4) Software development costs once
From creditor POV: Int. Coverage;
# of days payable =
Capitalized Intangibles...
The objective of f/s is to...
14. Off B/S asset or liability = Footnotes disclosure - Lease payments are expensed when due via I/S - Payments are CFO outflows
Operating Lease
Cash Flow From Investing (USA) (Assets)
Impact on the Cash Flow of a Par Bond...
Sources of Differences betweent F/S & T/
15. 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.
Diluted EPS
Fraud Triangle - 2) Opportunity
Impact on the B/S of a Premium Bond...
Debt covenants
16. 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
Low Quality Earnings is result of...
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Return on Assets ROA...
Segment Reporting
17. 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.
Gross Reporting of Revenue
Vertical Common Size Statements...
Tax base on a liability
Return on Equity (ROE)...
18. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes
Form 144...
The best indicator of overstating its profits is...
Types of accounting changes: accounting estimate
B/S - Long-lived assets PP&E
19. Actual cash outflow for taxes paid during current period
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Income Tax Paid...
Effects of Lease Classification on F/S - Operating Lease
Analysis: Market Value of Debt
20. 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
Statement of Cash Flow - relevance...
IFRS Revenue Recognition For Service
Impact on the B/S of a Par Bond...
21. Net income + non-cash charges - working cap investment
Cost included in Inventory on b/s...
Free Cash Flow -CFO
Tax base on a liability
Extraordinary Items: Unusual AND Infrequent items...
22. Impairment is recorded on a Contra asset account - revalued below original cost means contra asset account is 0 1) B/S asset reduced to FMV 2) Loss take to I/S 3) Reversal of org. loss allowed I/S 4) Increase above org. cost to equity (comprehenive
Lessor Accounting Capital Lease: Sales-Type Lease
Convergence IFRS/US GAAP...
Revaluation below historic cost...
DTA/DTL: Effect on Net Income when Tax Rate decreases...
23. Ensure that information in f/s is useful to a wide range of users.
Finance (capital) Lease criteria (under US GAAP)
IASB - Goals
The objective of f/s is to...
Form 8-K...
24. 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
ROE interpretation: if ROE is low...
Discontinued Operations...
Funded Status US GAAP & IFRS
Extraordinary Items: Unusual AND Infrequent items...
25. Contributed capital = c/s @ par plus add'l paid-in capital - Treasury stock (reaquired by frim but not yet retired) - are/E = Accum' NI less dividends - Minority (non-controlling) interest - Comprehensive income items: all chg in SOE not in I/S or fr
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26. 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.
Financial Assets: US GAAP/Fair Market Value
Barriers to a single framework...
Bond Issuance Cost under GAAP/IFRS
Motivation to Overstate Assets/Understate Liabilities
27. Potentially dilutive securitites [options - warrants - convertible securities]
Deferred Tax Asset: (DTA)
Complex Capital Structure
Inventory Cost Flow Methods...
Credit Rating Process...
28. Timing differences (depreciations) - Permanent differences
Sources of Differences betweent F/S & T/
Impact on the B/S of a Zero Coupon Bond...
Impact on the Cash Flow of a Zero Coupon Bond...
Finance (capital) Lease criteria GAAP vs. IFRS
29. 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
days of inv. on hand =
FASB - Harmonization
The 4 Qualitative Characteristics of IFRS
Financial Ration based on B/S: Liquidity Ratios
30. Efficient inventory managment
Intangible Assets
B/S - Long-lived assets PP&E
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Financial Adj to Facilitate Comparison...
31. 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
Creative Cash Flows Accounting: Technique
Installment Method...
Taxation Disclosure Requirements
Financial Adj to Facilitate Comparison...
32. I/S: COGS higher - EBT lower - Taxes: lower - NI: Lower - B/S: INV: lower - W/C: Lower - are/E: lower - CF: CFO: higher
LIFO results in: (assuming inflationary period)
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
IASB
Forecasting Financial Performance: Application
33. Assets held for continuing usage in the business NOT for resale ( Invoice price - Sales Tax - Freight & Insurance - and Installation costs) 1) capitalize costs that result in higher future earnings 2) expense costs that have uncertain/NO impact on fu
Asset Capitalization
Forecasting Financial Performance: Application
Financial Ratio based on I/S...
Installment Method...
34. 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
Implication for Analysts: Be aware of differences in tax reconcilation between periods
B/S - investments
Fraud Triangle - 3) Attitude/rationalization
35. 1) Aggregation where appropriate; 2) No offsetting assets against liabilities or income against exp.; 3) Classifed B/S; 4) Minimum Info on face; 5) Minimum disclosure; 6) Comparative info.
IFRS: Presentation Requirements
Impairments recognition (GAAP)
Financial Ratios based on B/S: Solvency ratio
Inventory Systems...
36. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Financial Ratio based on I/S...
Intercorporate Investment: < 20% votes...
Operating vs. Non-operating Income
Under Completed Contract Method...
37. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Taxation: Income Tax Expense
Discontinued Operations...
Inventory Valuatoin (LCM)
Footnote Finance Liability Disclosure
38. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Form DEF-14A...
Component depreciation;
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
CFO Analysis...
39. Contra asset account used to reduce DTA for probability that it will NOT be realized - Increase in valuation = decrease in DTA and NI - Decrease in valuation = increase in DTA and NI
Intercorporate Investment: 20% - 50% votes...
Motivation to Overstate Assets/Understate Liabilities
Discontinued Operations...
Valuation Allowance...
40. 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
Income Tax Paid...
B/S - short-term investments
FIFO is appropriate
Footnote Finance Liability Disclosure
41. Depreciation exp = (cost - residual value) x (# units produced / total expected to produce)
Form 144...
Units of Production Method
Impact on the Cash Flow of a Discount Bond...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
42. If any ONE out of the FOUR are met must be classifed as Financial Lease: 1) Title transfered to lessee at the end of lease; 2) Bargain purchase option at the end of the lease; 3) Lease period is at least 75% of asset's useful life; 4) The PV of least
Analyzing Effective Tax Rate Reconciliation
Finance (capital) Lease criteria (under US GAAP)
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Free Cash Flow -CFO
43. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Inventory Systems...
IFRS: Required F/S
Financial Liability: US GAAP/Fair Market Value
Tax Loss Carryforward...
44. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates
% of Completion
Sources of Differences: Temporary
Complex Capital Structure
Inventory mangement: High T/O (low DOH) and sales growth above industry average
45. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Potentially Dillutive Securities
Return on Equity (ROE)...
Impact on the B/S of a Premium Bond...
Inv. Valuation reporting Inventory ABOVE costs...
46. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Straight-line depreciation (SL)
Depreciation Methods...
Complex Capital Structure
Financial Ratios based on B/S: Solvency (Coverage)
47. Periodic: Inventory and COGS determined at p/e - Perpetual: Inv. & COGS updated for each sale (no purchase account need) - Cost flow method impact: FIFO = same for both - LIFO = different - Avg. cost = different - FIFO & LIFO relationship remain
B/S - investments
Inventory Systems...
Gain/(loss) on bond early retirement: (derecognition of debt)
Fraud Triangle - 1) Incentive/Pressure
48. 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
IFRS Revenue Recognition
Dilutive Securities
Segment Reporting
Horizontal Common Size Statements...
49. (GAAP) Internally created intangibles 1) (R&D) are expensed 2) Advertising 3) Software (developed to establish feasibility)
Gain/(loss) on bond early retirement: (derecognition of debt)
Expensed Intangibles...
Extended DuPont Equation...
Defined Benefit Plans
50. 1) will only benefit on reversal if there is sufficient taxable earnings 2) can only utilize loss carryforwards if we have future profits 3) If asset cannot be utilized in full it is reduced by a contra 'valuation allowance'. REDUCE DTA - REDUCE NI
B/S - Long-lived assets
DTA Issues
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Sarbanes-Oxley Management Report...