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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. Assets - liabilities - and equity are presented in a single column.
Depreciation Methods...
Intercorporate Investment: > 50% votes...
The report format of B/S
B/S - short-term investments
2. Primary) Relevance & Reliability - Secondary) Comparability - Lastly) Understandability - user specific
Fraud Triangle - 2) Opportunity
Credit Analysis: Ratios
The 4 Qualitative Characteristics of FASB...
Barter (IASB & FASB)
3. For inventory that does not deteriorate with age.
LIFO is appropriate
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Disclosure for each segment...
Double-decline balance (DDB)
4. Trading securities - Available-for-sale - Derivatives (standalone or embedded in non-derivative intrument) - Assets with fair value exposure hedged by derivatives
IFRS: Presentation Requirements
Financial Assets: US GAAP/Fair Market Value
Simple capital structure
Motivation to Understate Assets/Overstate Liabilities
5. Shows the performance of the company over a reporting period.
Income Statement
The objective of f/s is to...
Cash flow ratios
Double-decline balance (DDB)
6. 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:
CFO - Indirect method steps...
What is the economic substance of financial (capital) lease?
Barter (IASB & FASB)
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
7. 1) Development of high quality - transparent and enforceable global standards; 2) Promote application of standards; 3) Take into account special needs (small & med entities & emerging markets); 4) Convergence of nat'l and int'l standards
IASB - Goals
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Measures of Operating Performance - Efficiency Ratios...
Lessor Accounting Capital Lease: Sales-Type Lease
8. Increase in an asset: deduct (use of cash) - Increase in a liability: add (source of cash) - Decrease in an asset: add (source of cash) - Decrease in a liability: deduct (use of cash)
Implication for Analysts: Be aware of differences in tax reconcilation between periods
CFO - Direct/Indirect method
Antidilutive Securities
days of sales o/s =
9. 1) Scale & Diversification - 2) Operational Efficiency - 3) Margin Stability - 4) Leverage
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Financial Ration based on B/S: Liquidity Ratios
Analyst Treaments of DTL
4 General Categories for Creditworthiness/Capacity...
10. 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
Forecasting Financial Performance: Top Down Approach...
Fraud Triangle - 2) Opportunity
Footnote Finance Liability Disclosure
Component depreciation;
11. 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
Funded Status US GAAP & IFRS
FIFO is appropriate
Return on Assets ROA...
An Increase in the Valuation Allowance Account...
12. 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
BASIC EPS
Deferred Tax Asset: (DTA)
Credit Rating Process...
Steps of F/S Analysis
13. 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 =
FASB
LIFO is appropriate
Valuation Allowance...
Credit Analysis: Ratios
14. CFO = NI - means high quality of earnings but may be affect by the stage of business cycle and firm's life cycle - CFO > NI - means premature recognition of revenue or delayed recognition of expenses.
Discontinued Operations...
Diluted EPS
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
CFO Analysis...
15. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
The objective of f/s is to...
FASB
FIFO results in: (assuming inflationary period)
Measures of Operating Performance - Efficiency Ratios...
16. US 1) Financial Accounting Standards Board; 2) Standards form GAAP; 3) Aims - useful - relevant - reliable - consistent and comparable; 4) SEC deems FASB standard authoritative
Units of Production Method
Steps of F/S Analysis
The objective of f/s is to...
FASB
17. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)
IFRS/US GAAP Frameworks: Measurement of Elements...
Credit Analysis: Ratios
BASIC EPS
B/S - Long-lived assets
18. Efficient inventory managment
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Diluted EPS
IFRS/US GAAP Frameworks: F/S elements...
Cash Flow From Operations (CFO) - FASB
19. Delay Supplier pymt: boost CFO; review days' sales in AP; Financing of payables: use N/P to pay off AP; manipulate timing of CFO; Securitization of A/are: accelerates appearance of collection - boosts CFO; Tax benefit of stock options: lower tax paid
Creative Cash Flows Accounting: Technique
Measures of Operating Performance - Efficiency Ratios...
Antidilutive Securities
Horizontal Common Size Statements...
20. Shares are to take over control - Subsidiary - Consolidate financials
Intercorporate Investment: > 50% votes...
Extended DuPont Equation...
Net Realizable Value (NRV) (IFRS)
What is the economic substance of financial (capital) lease?
21. 1) Transparency; 2) Comprehensiveness; 3) Consistency
Revaluation below historic cost...
Sources of Differences: Permanent
Characteristics of an effective framework
FASB - Harmonization
22. 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.
Return on Equity (ROE)...
FIFO after-tax profit =
Valuation allowance
Low Quality Earnings is result of...
23. Loss that could not be deducted on the tax return in current period but may be used to reduce taxable income and taxes payable in future (i.e. warranty)
Tax Loss Carryforward...
FIFO after-tax profit =
Warning Signs of Earnings Manipulation
Form 144...
24. Outflow - (bringing bond DOWN to par)
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Impairments recognition (GAAP)
Low Quality Earnings is result of...
Implication for Analysts: Be aware of differences in tax reconcilation between periods
25. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower
Characteristics of an effective framework
Calculate dividends declared...
B/S - Long-lived assets PP&E
FIFO results in: (assuming inflationary period)
26. Cash Flow available for distribution to the c/s; after all obligations have been paid. CFO - fixed capital investment + net debt increase or CFO - net cap expenditure + net borrowings
CFO - Indirect method steps...
Credit Rating Process...
Convergence IFRS/US GAAP...
Free Cash Flow to Equity - FCFE
27. Employer promises specific payment stream at retirement - Payments are based on yrs of service - retirement age - and final salary - Employers bears investment risk - Funded by pool of assets - Complicated accounting
Defined Benefit Plans
CFO - Direct/Indirect method
Financial Adj to Facilitate Comparison...
Tax Loss Carryforward...
28. FASB & IASB -LT projects under contract - reliable estimates of revenue - cost and completion time -Rev - exp and profit are recognized in proportion to total cost incurred to date - divided by total expected cost.
The 4 Qualitative Characteristics of IFRS
LIFO is appropriate
% of Completion
FIFO after-tax profit =
29. 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...
Vertical Common Size Statements...
Financial Adj to Facilitate Comparison...
B/S - Long-term Liabilities
30. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
Steps of F/S Analysis
# of days payable =
Cash flow ratios
Vertical Common Size Statements...
31. Assess liquidity - solvency and financial flexibiliy
FASB
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Income Tax Paid...
Statement of Cash Flow - relevance...
32. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
Component depreciation;
Form 144...
IFRS/US GAAP Frameworks: Measurement of Elements...
IFRS Revenue Recognition
33. Profit is recognized only when it exceeds estimated total cost.
Net Periodic Benefit Costs
Cost recovery method...
Tax base on a liability
Capitalized Intangibles...
34. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.
Intangible Assets
Footnote disclosure of Reconciliation of opening and closing carrying values...
Taxable Income
Sustainable Growth
35. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Defined Benefit Plans
Financial Implications of Capitalizing...
Intangibles under IFRS...
Stock options: Use treasury stock method
36. Reported BELOW the line.Prohibited under IAS1 1) Losses from expropriation of assets. 2) Uninsured losses from natural disasters - Analyst must determine if it is really THAT extraordinary and if should be included in forecasting
Valuation Allowance...
Barter (IASB & FASB)
Extraordinary Items: Unusual AND Infrequent items...
Inventory mangement: High T/O (low DOH) and sales growth above industry average
37. Interest Expense = Amortization
CFO - Indirect method steps...
Intercorporate Investment: < 20% votes...
Impact on the B/S of a Zero Coupon Bond...
Calculate dividends declared...
38. 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
Motivation to Under-report Earnings
3 C's for Credit Analysis...
Low Quality Earnings is result of...
Taxation: Tax Payable
39. Timing differences (depreciations) - Permanent differences
Inv. Valuation reporting Inventory ABOVE costs...
Effective Tax Rate
Sources of Differences betweent F/S & T/
Effects of Lease Classification on Ratios - Finance Lease
40. 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
Fraud Triangle - 3) Attitude/rationalization
Barriers to a single framework...
Inventory Valuatoin (LCM)
Lessor Accounting Capital Lease: Sales-Type Lease
41. Income Tax Expense/Pretax Income (EBIT) Income Tax Exp. = Taxes payable + chg in deferred ta
Warning Signs of Earnings Manipulation
Effective Tax Rate
Horizontal Common Size Statements...
Tax Loss Carryforward...
42. 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.
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
IFRS Revenue Recognition For Service
Gross Reporting of Revenue
Taxation Disclosure Requirements
43. 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.
LIFO results in: (assuming inflationary period)
Cash Conversion Cycle =
IFRS: Presentation Requirements
Effects of Lease Classification on F/S - Finance Lease
44. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
Finance (capital) Lease criteria (under US GAAP)
FASB - Harmonization
Types of accounting changes...
Warning Signs of Earnings Manipulation
45. 1) Credit Scoring (CF Forecast) 2) Equity Investment screening (cutoff values)
Forecasting Financial Performance: Application
Financial Assets: US GAAP/Fair Market Value
The 4 Qualitative Characteristics of FASB...
LIFO results in: (assuming inflationary period)
46. 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
Sustainable Growth
Intercorporate Investment: < 20% votes...
B/S - Long-lived assets PP&E
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
47. 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
B/S - Long-term Liabilities
Intercorporate Investment: 20% - 50% votes...
IFRS/US GAAP Frameworks: Measurement of Elements...
CFO Disclosure requirement...
48. All other liabilities (e.g. bonds - notes payables - leases)
Cash Flow From Financing (USA) (Source of Cash)
Financial Liability: US GAAP/Amortized at Cost
Effects of Lease Classification on Ratios - Finance Lease
Inv. Valuation reporting Inventory ABOVE costs...
49. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Auditor/Audit Opinion
Trade-Offs Qualitative Characteristics of IFRS
B/S - investments
Analyst Treaments of DTL
50. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up
Form DEF-14A...
IFRS/US GAAP Frameworks: purpose of framework
Cash Flow: Logic (A = L + E)
Steps of F/S Analysis