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Test your basic knowledge |
Advanced Financial Reporting And Analysis
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Study First
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. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Effects of Lease Classification on Ratios - Finance Lease
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Credit Rating Process...
Intercorporate Investment: 20% - 50% votes...
2. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default
Fraud Triangle
Straight-line depreciation (SL)
B/S - Long-term Liabilities
Debt covenants
3. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)
B/S - Long-term Liabilities
Net Realizable Value (NRV) (IFRS)
Auditor/Audit Opinion
The 4 Qualitative Characteristics of IFRS
4. 1) Valuation; 2) Standard setting; 3) Measurement
Barriers to a single framework...
# of days payable =
days of sales o/s =
The 4 Qualitative Characteristics of FASB...
5. Shows the performance of the company over a reporting period.
Income Statement
Valuation Allowance...
Taxation: Income Tax Expense
Tax base on a liability
6. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
IFRS/US GAAP Frameworks: Recognition of Elements...
CFO - Direct/Indirect method
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Sources of Differences betweent F/S & T/
7. Aggressive Revenue Recognition - Diff. growth rates of operating cash flow and earnings - Abnormal comparative sales growth - Abnormal inventory growth as compared to sales - Moving nonoperating income and nonrecurring gains up to I/S to boost revenu
Low Quality Earnings is result of...
Warning Signs of Earnings Manipulation
B/S - investments
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
8. IFRS: Funded status is NOT on B/S Asset/Liability - Result in a b/s that does NOT represent econ reality - GAAP: Funded status = B/S Asset/Liability -Both disclose components of DBO - plan assets - expenses - and assumptions used to calculate pensio
Operating Lease
LIFO results in: (assuming inflationary period)
Impairments recognition (IFRS)
Funded Status US GAAP & IFRS
9. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up
Expensed Intangibles...
Cash Flow From Operations (CFO) - FASB
Defined Benefit Obligations (DBO)
Steps of F/S Analysis
10. Securities that would INCREASE EPS if exercised
IFRS: Required F/S
Expensed Intangibles...
CFO Disclosure requirement...
Antidilutive Securities
11. Primary) Relevance & Reliability - Secondary) Comparability - Lastly) Understandability - user specific
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Effective Tax Rate
Taxation: Tax Payable
The 4 Qualitative Characteristics of FASB...
12. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Financial Liability: US GAAP/Fair Market Value
Funded Status US GAAP & IFRS
Deferred Tax Asset: (DTA)
MD&A contains...
13. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
Financial Ration based on B/S: Liquidity Ratios
FASB - Harmonization
IFRS/US GAAP Frameworks: objective of F/S
ROE interpretation: if ROE is low...
14. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Effects of Lease Classification on F/S - Operating Lease
Fraud Triangle - 1) Incentive/Pressure
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
15. Unlisted instruments - Held-to-maturity investments - Loans - Receivables
BASIC EPS
Common Size Statement
Measurement of A & L disclosure in footnotes
Financial Assets: US GAAP/Amortized at Cost
16. 1) Credit Scoring (CF Forecast) 2) Equity Investment screening (cutoff values)
Forecasting Financial Performance: Application
Cost recovery method...
Return on Assets ROA...
Motivation to Over-report Earnings
17. Efficient inventory managment
Barriers to a single framework...
An Increase in the Valuation Allowance Account...
% of Completion
Inventory mangement: High T/O (low DOH) and sales growth above industry average
18. 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
Market Value (GAAP)...
The 4 Qualitative Characteristics of IFRS
Measurement of A & L disclosure in footnotes
Forecasting Financial Performance: Application
19. 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
Inv. Valuation reporting Inventory ABOVE costs...
Credit Rating Process...
Effects of Lease Classification on F/S - Finance Lease
B/S - investments
20. 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
Motivation to Under-report Earnings
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Forecasting Financial Performance: Application
21. You.S. GAAP
Sustainable Growth
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Add/ Sub changes to related b/s operating accounts
22. Cash collections less direct cash inputs less other cash outfllows
Lessor Accounting Capital Lease: Sales-Type Lease
Ending Inventory =
FIFO after-tax profit =
CFO - Direct method
23. 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
Form 144...
The report format of B/S
Net Reporting of Revenue
The account format of B/S
24. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Net Periodic Benefit Costs
IOSCO
Inventory Valuatoin (LCM)
B/S - Long-term Liabilities
25. 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
Sources of Differences: Temporary
Fraud Triangle - 3) Attitude/rationalization
Inv. Valuation reporting Inventory ABOVE costs...
3 C's for Credit Analysis...
26. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
DTA Issues
From creditor POV: Int. Coverage;
Inventory mangement: Low T/O (High DOH)...
Depreciation Methods...
27. Depreciation exp = (cost-residual value)/ useful life
Measurement of A & L disclosure in footnotes
Return on total capital (ROTC)...
FIFO after-tax profit =
Straight-line depreciation (SL)
28. 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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29. 365/(AR T/O) = 365/(Rev/Avg. AR)
Net Realizable Value (NRV) (IFRS)
CFI Analysis...
Tax base of an asset
days of sales o/s =
30. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability
Bond Issuance Cost under GAAP/IFRS
Taxation Analyst Adjustments...
Cash Flow: Logic (A = L + E)
Market Value (GAAP)...
31. 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
DTA Issues
B/S - short-term investments
Bond Issuance Cost under GAAP/IFRS
Financial Assets: US GAAP/Fair Market Value
32. Income Tax Expense/Pretax Income (EBIT) Income Tax Exp. = Taxes payable + chg in deferred ta
Add/ Sub changes to related b/s operating accounts
IFRS: Presentation Requirements
Effective Tax Rate
Financial Ratios based on B/S: Solvency (Coverage)
33. EBIT/ Avg. total capital - Total capital includes: debt capital - so int. is aded back to NI
Return on total capital (ROTC)...
Impact on the B/S of a Discount Bond...
The best indicator of overstating its profits is...
Activity Based Restrictions
34. Ensure that information in f/s is useful to a wide range of users.
Convergence IFRS/US GAAP...
Sources of Differences: Temporary
The objective of f/s is to...
BASIC EPS
35. Lost sales from stock outs
Intercorporate Investment: > 50% votes...
Free Cash Flow -CFO
Creative Cash Flows Accounting: Technique
Inventory mangement: High T/O (low DOH) and sales growth below industry average
36. Shares are to take over control - Subsidiary - Consolidate financials
Operating vs. Non-operating Income
Activity Based Restrictions
Footnote disclosure of Reconciliation of opening and closing carrying values...
Intercorporate Investment: > 50% votes...
37. IAS 39 Marketable securities - IAS 2 Inventories (LIFO prohibited) - IAS 16 PP&E - JV (IFRS: proportional consolidation) - IAS 38 Intangibles - IAS 18 & 11 Contruction Contracts - Extraordinary Items: Prohibited in IFRS - Cash Flow Statement
Convergence IFRS/US GAAP...
Net Reporting of Revenue
To investigate the stability of that structure - Kilgore would be best served by looking at...
Inventory mangement: High T/O (low DOH) and sales growth below industry average
38. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Horizontal Common Size Statements...
Financial Ratios based on B/S: Solvency (Coverage)
Characteristics of an effective framework
Financial Liability: US GAAP/Fair Market Value
39. Adjustments Involves erros or new accounting standards - Resate prior period - Disclose nature and effect on NI - Errors may indicate weakness in internal controls
B/S - Long-lived assets PP&E
Income Tax Paid...
CFI Analysis...
Types of accounting changes: prior period adjustments
40. Off B/S asset or liability = Footnotes disclosure - Lease payments are expensed when due via I/S - Payments are CFO outflows
Roles of financial reporting & analysis include...
Debt covenants
Operating Lease
Effects of Lease Classification on Ratios - Operating Lease
41. 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
Segment Reporting
Finance (capital) Lease criteria GAAP vs. IFRS
Free Cash Flow to the Firm - FCFF
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
42. [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
Free Cash Flow -CFO
Diluted EPS
Sarbanes-Oxley Management Report...
DBO Funded Status =
43. 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
CFO Disclosure requirement...
% of Completion
B/S - investments
Balance Sheet - formats
44. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method
Inventory mangement: Low T/O (High DOH)...
The 4 Qualitative Characteristics of FASB...
Convergence IFRS/US GAAP...
Intercorporate Investment: 20% - 50% votes...
45. Taxes payable + chg deferred Tax as per Financial Report
B/S - Stockholders' Equity
Intercorporate Investment: 20% - 50% votes...
Taxation: Income Tax Expense
Impairments recognition (IFRS)
46. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.
IFRS/US GAAP Frameworks: underlying assumptions...
FASB
IFRS/US GAAP Frameworks: objective of F/S
FIFO ending inventory =
47. 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
B/S - Stockholders' Equity
Financial Ration based on B/S: Liquidity Ratios
IASB - Goals
Creative Cash Flows Accounting: Technique
48. Is required under IFRS but not under GAAP
Taxable Income
Installment Method...
Footnote disclosure of Reconciliation of opening and closing carrying values...
Impact on the Cash Flow of a Premium Bond...
49. 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
Unusual OR Infrequent items...
IFRS Revenue Recognition
Statement of Cash Flow - relevance...
CFO Disclosure requirement...
50. 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 =
Defined Benefit Plans
Measures of Operating Performance - Efficiency Ratios...
Income Tax Paid...
Credit Analysis: Ratios