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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. Interest expense = Coupon rate
Intercorporate Investment: < 20% votes...
Form 144...
Footnote Finance Liability Disclosure
Impact on the B/S of a Par Bond...
2. All DTA and DTL are classified as noncurrent under IFRS - Under U.S. GAAP - deferred tax assets and liabilities are classified as current or non-current according to the classification of the underlying asset or liability. Under IFRS - deferred tax a
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Types of accounting changes...
FIFO after-tax profit =
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
3. Timing differences (depreciations) - Permanent differences
Sources of Differences betweent F/S & T/
CFO - Direct method
Taxation Disclosure Requirements
Analysis: Market Value of Debt
4. Pd after more than 1 year - notes & bonds: at PV of future CF pymets - Capital leases - Provisions - Deferred tax
Footnote Finance Liability Disclosure
Form 144...
Tax base of an asset
B/S - Long-term Liabilities
5. 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.)
days of inv. on hand =
DBO Funded Status =
3 C's for Credit Analysis...
Gain/(loss) on bond early retirement: (derecognition of debt)
6. Amount deductible in future tax return
MD&A contains...
Tax base of an asset
Cash flow ratios
Impact on the B/S of a Discount Bond...
7. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
IFRS Revenue Recognition For Service
Impairments recognition (GAAP)
Operating vs. Non-operating Income
Defined Contribution Plans
8. Means that at least ONE of the following is true: Company has poor profit margin; Company has poor asset TO; Company is underleveraged
Cash Conversion Cycle =
Bond Issuance Cost under GAAP/IFRS
ROE interpretation: if ROE is low...
FIFO is appropriate
9. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Financial Ratio based on I/S...
Tax base on a liability
Free Cash Flow to the Firm - FCFF
Measures of Operating Performance - Efficiency Ratios...
10. If PV of min lease pymt = cost of asset 1) lessor is not a dealer of leased equipment (fin. co.)2) no gross profit is recognized at time of lease inception 3) all profit is int. revenue recognized over period of lease. CFO = Int. Income inflow - CFI
Impact on the B/S of a Discount Bond...
Taxation: Tax Payable
Net Periodic Benefit Costs
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
11. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Tax base of an asset
Financial Lease Reporting
IOSCO
Depreciation Methods...
12. 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.
Inv. Valuation reporting Inventory ABOVE costs...
B/S - Long-lived assets PP&E
Footnote Finance Liability Disclosure
Defined Benefit Obligations (DBO)
13. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
FASB - Harmonization
Activity Based Restrictions
Balance Sheet
Free Cash Flow -CFO
14. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
Screening for Potential Equity Investment: Criteria
IFRS Revenue Recognition
FASB - Harmonization
FIFO after-tax profit =
15. 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
Forecasting Financial Performance: Top Down Approach...
Low Quality Earnings is result of...
IFRS/US GAAP Frameworks: Measurement of Elements...
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
16. 1) if 50% of its revenue is earned externally 2) if a business area has at least 10% of a firm's: Revenue; or Operating profit; or Use of asset 3) Business and geographical segments
Capitalized Intangibles...
Segment Reporting
Straight-line depreciation (SL)
Income Statement
17. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
Measurement of A & L disclosure in footnotes
CFO Analysis...
Deferred Tax Liability: (DTL)
% of Completion
18. 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
Types of accounting changes: prior period adjustments
Sources of Differences betweent F/S & T/
IOSCO
Sarbanes-Oxley Management Report...
19. Assets - liabilities - and equity are presented in a single column.
The report format of B/S
Unusual OR Infrequent items...
Free Cash Flow to Equity - FCFE
CFO - Direct/Indirect method
20. EBIT/ Avg. total capital - Total capital includes: debt capital - so int. is aded back to NI
Complex Capital Structure
Cost included in Inventory on b/s...
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Return on total capital (ROTC)...
21. 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
Traditional DuPont Equation...
Low Quality Earnings is result of...
LIFO is appropriate
Taxation: Tax Payable
22. 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
Types of accounting changes: prior period adjustments
Effects of Lease Classification on F/S - Finance Lease
Analyzing Effective Tax Rate Reconciliation
Credit Analysis: Ratios
23. 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
Impairments recognition (GAAP)
Financial Assets: US GAAP/Amortized at Cost
Barter (IASB & FASB)
24. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Financial Lease Reporting
Free Cash Flow -CFO
The best indicator of overstating its profits is...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
25. Actual cash outflow for taxes paid during current period
Sarbanes-Oxley Management Report...
Antidilutive Securities
Income Tax Paid...
Capitalization of Interest...
26. Shows only the difference between sales and cost of goods sold Users are usually: 1) internet-based merchandising companies; 2) Sell prodict but never hold inventory; 3) Arrangement for supplier to ship directly to end customer. Discolsure policies
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
IFRS: Presentation Requirements
FIFO is appropriate
Net Reporting of Revenue
27. Interest Expense = Coupon + Amortization = PV of future CF x market yield @ issuance
Impact on the B/S of a Discount Bond...
Measures of Operating Performance - Efficiency Ratios...
Reasons to Lease...
Financial Lease Reporting
28. Shows the performance of the company over a reporting period.
Inv. Valuation reporting Inventory ABOVE costs...
IFRS Revenue Recognition For Service
Comprehensive income...
Income Statement
29. 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
IFRS/US GAAP Frameworks: purpose of framework
Fraud Triangle - 3) Attitude/rationalization
From creditor POV: Int. Coverage;
Motivation to Overstate Assets/Understate Liabilities
30. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default
Debt covenants
Add/ Sub changes to related b/s operating accounts
Intangibles under IFRS...
The best indicator of overstating its profits is...
31. Income variability lower - Profitability early years (ROE - ROA & NI) is Higher - Profitability later years: lower - Total Cash Flows: Same - CFO: higher - CFI: Lower - Leverage ratios: D/E & D/A: lower - Opposite fore Expensing
Antidilutive Securities
The 4 Qualitative Characteristics of FASB...
Financial Implications of Capitalizing...
Deferred Tax Liability: (DTL)
32. 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
3 C's for Credit Analysis...
4 General Categories for Creditworthiness/Capacity...
Financial Implications of Capitalizing...
33. 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
Creative Cash Flows Accounting: Technique
Income Statement
Stock options: Use treasury stock method
B/S - short-term investments
34. For inventory that has a limited shelf life ex) Because the movies have a very limited shelf life and will greatly deteriorate in value with age - especially after the first year - FIFO is the most appropriate method of accounting for the movies for
Lessor Accounting Capital Lease: Sales-Type Lease
Implication for Analysts: Be aware of differences in tax reconcilation between periods
FIFO is appropriate
Ratios that directly affect choice of Inventory Account...
35. 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
Revaluation below historic cost...
Bond Issuance Cost under GAAP/IFRS
FIFO results in: (assuming inflationary period)
CFO Disclosure requirement...
36. Primary) Relevance & Reliability - Secondary) Comparability - Lastly) Understandability - user specific
Extraordinary Items: Unusual AND Infrequent items...
Fraud Triangle - 1) Incentive/Pressure
The 4 Qualitative Characteristics of FASB...
Dilutive Securities
37. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.
Inventory Valuatoin (LCM)
Impact on the Cash Flow of a Par Bond...
Tax base on a liability
Sustainable Growth
38. 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
IFRS/US GAAP Frameworks: purpose of framework
Reasons to Lease...
Gain/(loss) on bond early retirement: (derecognition of debt)
Fraud Triangle
39. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality
Expensed Intangibles...
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
ROE interpretation: if ROE is low...
Analysis: Market Value of Debt
40. 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
FIFO ending inventory =
Net Periodic Benefit Costs
Effects of Lease Classification on F/S - Finance Lease
Balance Sheet
41. [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
Cash Flow From Operations (CFO) - FASB
Debt covenants
The account format of B/S
Diluted EPS
42. ROE = (NI/Sales) x (Sales/Assets) x (Assets/Equity) or ROE= Net Profit Margin x Asset TO x Leverage Ratio
Capitalization of Interest...
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Traditional DuPont Equation...
Forecasting Financial Performance: Top Down Approach...
43. LIFO after-tax profit + (change in LIFO reserve)(1 - t)
Return on Equity (ROE)...
IFRS/US GAAP Frameworks: purpose of framework
Intercorporate Investment: 20% - 50% votes...
FIFO after-tax profit =
44. 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
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Inventory mangement: Low T/O (High DOH)...
Asset Revaluation: IFRS
CFO Disclosure requirement...
45. 1) Show each item as a % of Net Revenue 2) Show each inflow as a % of total inflows 3) Show each outflow as a % of total outflow
Forecasting Financial Performance: Application
Common Size Statement
FIFO after-tax profit =
Screening for Potential Equity Investment: Criteria
46. 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.
Measurement of A & L disclosure in footnotes
Bond Issuance Cost under GAAP/IFRS
Finance (capital) Lease criteria (under US GAAP)
Valuation allowance
47. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Cash Flow From Operations (CFO) - FASB
Extended DuPont Equation...
Trade-Offs Qualitative Characteristics of IFRS
Debt covenants
48. Inventory TO = COGS / Avg. Inventory - LIFO = Higher - FIFO = Lower - DOH = 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.) - LIFO = lower days - FIFO = higher days - Gross Profit margin = Gross profit/ revenues - LIFO = lower - FIFO = higher
Creative Cash Flows Accounting: Motivation
Ratios that directly affect choice of Inventory Account...
Taxation Analyst Adjustments...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
49. Required by IFRS - Permited by US GAAP
Financial Lease Reporting
ROE interpretation: if ROE is low...
Intangible Assets
Component depreciation;
50. Improve ROA and Asset TO Ratios - Report higher aquisition goodwill
Taxable Income
Analyzing Effective Tax Rate Reconciliation
Motivation to Understate Assets/Overstate Liabilities
Deferred Tax Liability: (DTL)