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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
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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. I/S and B/S - Each line is relative to base year
Cash flow ratios
Financial Ratio based on I/S...
Installment Method...
Horizontal Common Size Statements...
2. 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
B/S - Long-lived assets PP&E
Impact on the Cash Flow of a Discount Bond...
Income Tax Paid...
Free Cash Flow -CFO
3. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Financial Ratio based on I/S...
Activity Based Restrictions
Taxation: Income Tax Expense
Inventory Valuatoin (LCM)
4. 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
Cash flow ratios
Under Completed Contract Method...
Intercorporate Investment: < 20% votes...
Asset Capitalization
5. Cash collections less direct cash inputs less other cash outfllows
Inventory Cost Flow Methods...
Inventory Valuatoin (LCM)
CFO - Direct method
Return on total capital (ROTC)...
6. 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
Cash Flow From Investing (USA) (Assets)
Market Value (GAAP)...
FIFO after-tax profit =
IFRS/US GAAP Frameworks: purpose of framework
7. Reported ABOVE the line 1) G/(L) from disposal of a business segment 2) G/(L) from sale of investment in subsidiary 3) Provisions for environmental remediation - impairments - write-offs - write-downs - restructuring.4) Integration expense for recent
Double-decline balance (DDB)
Intercorporate Investment: 20% - 50% votes...
Forecasting Financial Performance: Top Down Approach...
Unusual OR Infrequent items...
8. 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.
Impact on the B/S of a Discount Bond...
Footnote disclosure of Reconciliation of opening and closing carrying values...
Auditor/Audit Opinion
Fraud Triangle - 2) Opportunity
9. 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)
Complex Capital Structure
Impact on the Cash Flow of a Discount Bond...
Convergence IFRS/US GAAP...
10. 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
Cash Flow From Operations (CFO) - FASB
LIFO is appropriate
Gross Reporting of Revenue
Taxation Disclosure Requirements
11. Tax liability based on taxable income as per TAX Report/RETURN
FIFO is appropriate
IOSCO
Potentially Dillutive Securities
Taxation: Tax Payable
12. 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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13. +Cash rcvd from customer - +Cash dividends rcvd - +Cash interest rcvd - +Other cash income ((trading securities) - Payment to suppliers - Cash expenses (wages etc) - Cash interest paid - Cash taxes paid
Cash Flow From Operations (CFO) - FASB
Capitalization of Interest...
Financial Ration based on B/S: Liquidity Ratios
Types of accounting changes: prior period adjustments
14. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Impact on the B/S of a Premium Bond...
Taxation Disclosure Requirements
Operating Lease
IFRS/US GAAP Frameworks: underlying assumptions...
15. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
Financial Adj to Facilitate Comparison...
Free Cash Flow to the Firm - FCFF
CFO - Direct/Indirect method
The account format of B/S
16. Efficient inventory managment
FASB
Finance (capital) Lease criteria GAAP vs. IFRS
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Motivation to Overstate Assets/Understate Liabilities
17. Nature of liability; Maturity dates; Stated and effective int. rates; Call and conversion features; covenants; security pledged as collateral; Amount of Debt maturity in each of the next 5 years; Fair value of o/s instrutments
Balance Sheet - formats
Taxation Analyst Adjustments...
Free Cash Flow -CFO
Footnote Finance Liability Disclosure
18. 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
Intangibles under IFRS...
Revaluation below historic cost...
IFRS/US GAAP Frameworks: objective of F/S
Dilutive Securities
19. 1) 3rd party pressure: 1) analyst/institutional expectations; 2) need to obtain finance; 3) listing requirements; 4) Debt covenants; 5) Transactions 2) Directors' Financial Position: 1) Equity interest; 2) Stock options; 3) Personal debt guarantees.
Fraud Triangle - 1) Incentive/Pressure
Motivation to Understate Assets/Overstate Liabilities
Characteristics of an effective framework
# of days payable =
20. 1) Lack physical form (patent - copyrights etc; 2) Good will is an ex. of an unidentifiable intangible asset - not amortized but subject to annual impairment reviews; 3) Identifiable intangibles are amortized.(eliminate goodwill from ratio analysis)
Intangible Assets
Complex Capital Structure
Revaluation above historic cost...
Analyzing Effective Tax Rate Reconciliation
21. 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
Cost included in Inventory on b/s...
IFRS/US GAAP Frameworks: underlying assumptions...
Measurement of A & L disclosure in footnotes
Analyzing Effective Tax Rate Reconciliation
22. Assets - liabilities - and equity are presented in a single column.
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Forecasting Financial Performance: Application
The report format of B/S
# of days payable =
23. Shows the financial position of a firm AT A SINGLE POINT in time A = L + E.
Trade-Offs Qualitative Characteristics of IFRS
MD&A contains...
Balance Sheet
Financial Liability: US GAAP/Amortized at Cost
24. Working Capital = CA - CL - Working Capital TO = Rev/Avg. Working Capital - Fixed Asset TO = Rev/Avg Net Fixed Assets
The objective of f/s is to...
Motivation to Under-report Earnings
Financial Ratios based on B/S: Solvency ratio
Activity Ratios
25. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
Cash Flow From Operations (CFO) - IFRS
IFRS/US GAAP Frameworks: F/S elements...
Measurement of A & L disclosure in footnotes
Effects of Lease Classification on Ratios - Operating Lease
26. 1) Transparency; 2) Comprehensiveness; 3) Consistency
Comprehensive income...
Characteristics of an effective framework
Lessor Accounting Capital Lease: Sales-Type Lease
Steps of F/S Analysis
27. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
SEC guidance for Revenue Recognition
From creditor POV: Int. Coverage;
IFRS Revenue Recognition
Financial Liability: US GAAP/Fair Market Value
28. Profit is recognized only when it exceeds estimated total cost.
CFO - Direct/Indirect method
Cost recovery method...
Gain/(loss) on bond early retirement: (derecognition of debt)
The objective of f/s is to...
29. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Steps of F/S Analysis
Common Size Statement
IFRS/US GAAP Frameworks: Recognition of Elements...
30. It is the purchase of an asset using debt finance.
Impact on the B/S of a Par Bond...
Footnote Finance Liability Disclosure
What is the economic substance of financial (capital) lease?
Return on total capital (ROTC)...
31. Capital structure that contains NO potentially dillutive securities - (contains only c/s - nonconvertible debt - and nonconvertible pref. stock)
B/S - Long-lived assets PP&E
4 General Categories for Creditworthiness/Capacity...
Simple capital structure
CFO Analysis...
32. To improve liquidity and leverage ratios
Motivation to Overstate Assets/Understate Liabilities
Types of accounting changes: accounting principle
Installment Method...
Taxation Disclosure Requirements
33. Shows the performance of the company over a reporting period.
Income Statement
Capitalized Intangibles...
Operating Risk Ratios...
Statement of Cash Flow - relevance...
34. PV of future obligation or the PV of the amount owed to employees for future pension benefits earned to date - Payments are determined based on expected final salary.
Defined Benefit Obligations (DBO)
MD&A contains...
Traditional DuPont Equation...
Motivation to Understate Assets/Overstate Liabilities
35. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
# of days payable =
Income Statement
Asset Revaluation: IFRS
Stock options: Use treasury stock method
36. 1) Meet CFO (strategy; industry overview - accounting policy) 2) Tour major facilities 3) Vote on analyst recommendations (bus.& fin. risk) 4) Monitor publicly distributed ratings
FIFO after-tax profit =
The 4 Qualitative Characteristics of IFRS
Credit Rating Process...
Extraordinary Items: Unusual AND Infrequent items...
37. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)
IOSCO
SEC guidance for Revenue Recognition
Financial Liability: US GAAP/Amortized at Cost
Auditor/Audit Opinion
38. 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
Types of accounting changes: accounting estimate
Intercorporate Investment: < 20% votes...
Cost included in Inventory on b/s...
Net Realizable Value (NRV) (IFRS)
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
IFRS/US GAAP Frameworks: Recognition of Elements...
Net Periodic Benefit Costs
Valuation Allowance...
Common Size Statement
40. 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
Effective Tax Rate
Depreciation Methods...
Inventory Systems...
Taxable Income
41. EBIT/ *Gross Interest EBITDA/ *Gross Interest *(inc'd capitalized interest) - How many times is EBIT or EBITDA bigger than gross interest? Higher ratio is desired. Shows ability to cover int. payment
IASB - Goals
From creditor POV: Int. Coverage;
Taxable Income
Net Periodic Benefit Costs
42. Potentially dilutive securitites [options - warrants - convertible securities]
What is the economic substance of financial (capital) lease?
Taxation Analyst Adjustments...
Antidilutive Securities
Complex Capital Structure
43. 1) Forecast GDP 2) Regress industry sales against GDP 3) Forecast industry sales 4) Cosider changes to firm's mkt share 5) Forecast firms sales 6) Use hisoric margins for stable firms or forecast individual expense items 7) Remove non-recurring items
Cost recovery method...
ROE interpretation: if ROE is low...
Forecasting Financial Performance: Top Down Approach...
To investigate the stability of that structure - Kilgore would be best served by looking at...
44. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Financial Ratios based on B/S: Solvency (Coverage)
CFO - Direct method
Analyst Treaments of DTL
45. 1) Revenue (external & internal) 2) Segment results (operating profit) 3) Carrying amount of segment asset4 4) Segment liabilities (IFRS) 5) Cost of PPE and intangibles acquired 6) Depreciation and Amort expenses 7) Other non-cash expense 8) Share of
Disclosure for each segment...
Financial Ration based on B/S: Liquidity Ratios
ROE interpretation: if ROE is low...
Inv. Valuation reporting Inventory ABOVE costs...
46. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
LIFO results in: (assuming inflationary period)
Vertical Common Size Statements...
Fraud Triangle - 2) Opportunity
Impairments recognition (IFRS)
47. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
Funded Status US GAAP & IFRS
Operating vs. Non-operating Income
Deferred Tax Asset: (DTA)
Financial Ratios based on B/S: Solvency ratio
48. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
Double-decline balance (DDB)
Asset Revaluation: IFRS
An Increase in the Valuation Allowance Account...
Inventory mangement: High T/O (low DOH) and sales growth below industry average
49. 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
Deferred Tax Asset: (DTA)
Simple capital structure
Financial Lease Reporting
Analyzing Effective Tax Rate Reconciliation
50. 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
Deferred Tax Asset: (DTA)
Tax base on a liability
B/S - Stockholders' Equity
Analyst Treaments of DTL