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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. '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
Inventory mangement: Low T/O (High DOH)...
IFRS/US GAAP Frameworks: Recognition of Elements...
Analyst Treaments of DTL
Cash Flow From Investing (USA) (Assets)
2. 1st: Net Income - dividends declared = chg in are/E - Then: Dividends declared +/- chg dividends payable = cash dividends paid.
Calculate dividends declared...
Financial Lease Reporting
Deferred Tax Asset: (DTA)
Unusual OR Infrequent items...
3. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher
IFRS/US GAAP Frameworks: Measurement of Elements...
Impact on the Cash Flow of a Premium Bond...
Cost recovery method...
Inventory mangement: High T/O (low DOH) and sales growth above industry average
4. 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
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Credit Rating Process...
Footnote Finance Liability Disclosure
Fraud Triangle - 3) Attitude/rationalization
5. US 1) Financial Accounting Standards Board; 2) Standards form GAAP; 3) Aims - useful - relevant - reliable - consistent and comparable; 4) SEC deems FASB standard authoritative
FASB
Defined Benefit Obligations (DBO)
Tax base on a liability
Comprehensive income...
6. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
Cost included in Inventory on b/s...
IFRS Revenue Recognition For Service
Gross Reporting of Revenue
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
7. NRV = Est. selling cost - Est. cost of complition - selling costs
Extended DuPont Equation...
Return on total capital (ROTC)...
Net Realizable Value (NRV) (IFRS)
What is the economic substance of financial (capital) lease?
8. 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
Capitalization of Interest...
Low Quality Earnings is result of...
Forecasting Financial Performance: Top Down Approach...
Intercorporate Investment: < 20% votes...
9. +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
FASB
The report format of B/S
Capitalization of Interest...
Cash Flow From Operations (CFO) - FASB
10. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Simple capital structure
Form DEF-14A...
Inventory Systems...
Financial Ratios based on B/S: Solvency (Coverage)
11. 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.
Defined Contribution Plans
Gross Reporting of Revenue
Cash Flow From Operations (CFO) - FASB
4 General Categories for Creditworthiness/Capacity...
12. Capital structure that contains NO potentially dillutive securities - (contains only c/s - nonconvertible debt - and nonconvertible pref. stock)
Asset Revaluation: IFRS
Simple capital structure
Effects of Lease Classification on Ratios - Finance Lease
Impact on the Cash Flow of a Zero Coupon Bond...
13. Income Tax Expense/Pretax Income (EBIT) Income Tax Exp. = Taxes payable + chg in deferred ta
Effective Tax Rate
Inventory mangement: Low T/O (High DOH)...
Return on total capital (ROTC)...
Cash Flow From Financing (USA) (Source of Cash)
14. 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
Fraud Triangle
Free Cash Flow to the Firm - FCFF
Cash Flow From Operations (CFO) - IFRS
Finance (capital) Lease criteria (under US GAAP)
15. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates
Sources of Differences: Temporary
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Sources of Differences: Permanent
3 C's for Credit Analysis...
16. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Inventory Valuatoin (LCM)
Types of accounting changes: prior period adjustments
Intercorporate Investment: > 50% votes...
Valuation Allowance...
17. Shows the financial position of a firm AT A SINGLE POINT in time A = L + E.
B/S - short-term investments
Balance Sheet
Return on Assets ROA...
Tax Loss Carryforward...
18. Off B/S asset or liability = Footnotes disclosure - Lease payments are expensed when due via I/S - Payments are CFO outflows
Statement of Cash Flow - relevance...
B/S - Long-lived assets PP&E
Comprehensive income...
Operating Lease
19. 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
IFRS: Required F/S
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...
Warning Signs of Earnings Manipulation
20. 1) Stretching A/P (increase in # days in payable) = 365/(AP T/O) = 365/(purchases/ Avg. AP)) 2) Financing payables (allows to great AP as CFF) 3) Securitizing A/are: (allows to recognize gains in I/S) 4) Income Tax Benefit from stock options 5) Buyba
Convergence IFRS/US GAAP...
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Return on Equity (ROE)...
Financial Ratios based on B/S: Solvency ratio
21. Return on Total Equity = NI/ Avg. Total Equity - Return on C/E = NI - Pref. Div/ Avg. Common Equity
Operating vs. Non-operating Income
Return on Equity (ROE)...
IFRS/US GAAP Frameworks: underlying assumptions...
% of Completion
22. Held for continuing use within the business (not for resale) 1) investment property; 2) Assets held for sale; 3) Natural resources; 4) PP&E
Sales Basis Revenue Recognitions
B/S - Long-lived assets
Impact on the Cash Flow of a Premium Bond...
IFRS/US GAAP Frameworks: objective of F/S
23. 1) Purchase cost; 2) conversion costs; 3) Allocation of fixed production OH based on normal capacity levels; 4) Other costs necessary to bring the inventory to its present location and condition (freight costs & installation) - Exclude: Admin OH - S
Sustainable Growth
Creative Cash Flows Accounting: Motivation
Cost included in Inventory on b/s...
Effects of Lease Classification on F/S - Finance Lease
24. It is the purchase of an asset using debt finance.
Debt covenants
What is the economic substance of financial (capital) lease?
The objective of f/s is to...
IFRS: Required F/S
25. Depreciation exp = (cost-residual value)/ useful life
Straight-line depreciation (SL)
Net Reporting of Revenue
Asset Revaluation: IFRS
Cash flow ratios
26. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.
IFRS/US GAAP Frameworks: F/S elements...
Fraud Triangle - 3) Attitude/rationalization
Impact on the B/S of a Premium Bond...
To investigate the stability of that structure - Kilgore would be best served by looking at...
27. 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
The account format of B/S
Net Reporting of Revenue
Potentially Dillutive Securities
Analyst Treaments of DTL
28. Stock options - Warrants - Convertible debt - Convertible preferred stock
DBO Funded Status =
Return on total capital (ROTC)...
Potentially Dillutive Securities
CFO Analysis...
29. 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
Cash Conversion Cycle =
Types of accounting changes: accounting principle
Inventory Systems...
Extraordinary Items: Unusual AND Infrequent items...
30. 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
Debt covenants
Motivation to Under-report Earnings
Discontinued Operations...
Impact on the Cash Flow of a Premium Bond...
31. 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.
Form 8-K...
IFRS: Presentation Requirements
Finance (capital) Lease criteria GAAP vs. IFRS
Convergence IFRS/US GAAP...
32. 1) Balance Sheet; 2) Comprehensive Income; 3) Change in Equity; 4) Cash Flow Statement; 5) Accounting policies and notes.
IFRS: Required F/S
Financial Ratio based on I/S...
Asset Capitalization
FASB - Harmonization
33. 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:
Stock options: Use treasury stock method
CFO - Indirect method steps...
Cash Flow From Investing (USA) (Assets)
Horizontal Common Size Statements...
34. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up
Fraud Triangle
Sources of Differences betweent F/S & T/
Steps of F/S Analysis
Reasons to Lease...
35. You.S. GAAP
Intercorporate Investment: < 20% votes...
Under Completed Contract Method...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Taxation: Tax Payable
36. For inventory that does not deteriorate with age.
Sarbanes-Oxley Management Report...
Net Reporting of Revenue
LIFO is appropriate
Analyzing Effective Tax Rate Reconciliation
37. 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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38. 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
IFRS Revenue Recognition For Service
LIFO is appropriate
Segment Reporting
Financial Implications of Capitalizing...
39. I/S: COGS higher - EBT lower - Taxes: lower - NI: Lower - B/S: INV: lower - W/C: Lower - are/E: lower - CF: CFO: higher
FIFO after-tax profit =
Simple capital structure
Balance Sheet - formats
LIFO results in: (assuming inflationary period)
40. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Taxation Disclosure Requirements
Cost included in Inventory on b/s...
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
41. Required by IFRS - Permited by US GAAP
Form 8-K...
B/S - investments
Component depreciation;
BASIC EPS
42. 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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43. 1) Intention to hold >1 year (e.g. debt or equity) valued @ cost or mkt value 2) Equity accounted investments
B/S - investments
Financial Implications of Capitalizing...
Inventory mangement: Low T/O (High DOH)...
Effects of Lease Classification on Ratios - Finance Lease
44. Lost sales from stock outs
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Intangible Assets
Ending Inventory =
Intercorporate Investment: 20% - 50% votes...
45. Securities that would INCREASE EPS if exercised
FASB - Harmonization
CFO - Direct/Indirect method
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Antidilutive Securities
46. 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
Financial Lease Reporting
IFRS/US GAAP Frameworks: Recognition of Elements...
Financial Ratios based on B/S: Solvency (Coverage)
47. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
FASB - Harmonization
# of days payable =
Types of accounting changes...
4 General Categories for Creditworthiness/Capacity...
48. 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
LIFO results in: (assuming inflationary period)
Deferred Tax Asset: (DTA)
FIFO is appropriate
Intangible Assets
49. 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
Stock options: Use treasury stock method
Intangible Assets
Complex Capital Structure
Implication for Analysts: Be aware of differences in tax reconcilation between periods
50. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Stock options: Use treasury stock method
Sources of Differences: Temporary
Free Cash Flow -CFO