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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. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
IFRS Revenue Recognition
CFO - Direct/Indirect method
CFI Analysis...
The best indicator of overstating its profits is...
2. Change in equity from transactions from nonownership sources. Include: NI - chg in foreign currency translation adj. - chg in pension adj to funded status - chg unrealized gains/losses on derivatives contracts accounted for as hedges - chng in unrea
Financial Liability: US GAAP/Fair Market Value
Under Completed Contract Method...
Vertical Common Size Statements...
Comprehensive income...
3. 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
Convergence IFRS/US GAAP...
FASB
FIFO is appropriate
Disclosure for each segment...
4. BV - cash paid = gain/(loss) + any unamortized issue costs (US only) = Gain/Loss on repurchase [I/S as continuing operations)
Convergence IFRS/US GAAP...
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Gain/(loss) on bond early retirement: (derecognition of debt)
B/S - investments
5. Higher share price - Lower borrowing cost - Higher incentive compensation
Net Reporting of Revenue
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Creative Cash Flows Accounting: Motivation
Roles of financial reporting & analysis include...
6. Companies must file this form to disclose material events including significant asset acquisitions and disposals - changes in management or corporate governance - or matters related to its accountants - financial statements - or the markets on which
Form 8-K...
Fraud Triangle
B/S - investments
Cash flow ratios
7. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
Impact on the B/S of a Zero Coupon Bond...
Cost included in Inventory on b/s...
Intercorporate Investment: 20% - 50% votes...
Asset Revaluation: IFRS
8. 1) Cheaper Financing; 2) Reduce risk of obsolescence; 3) Less restrictive provisions; 4) Off-B/S reporting; 5) Tax Reporting Advantages (treated as ownership for tax ( deduct depreciation and interest expense)
Finance (capital) Lease criteria GAAP vs. IFRS
Unusual OR Infrequent items...
B/S - Long-term Liabilities
Reasons to Lease...
9. EU 1) Int'l Accounting Standards Board; 2) Unified int'l frameworks of accounting standards (IFRS); 3) Addopted by EU in 2005
Effects of Lease Classification on F/S - Operating Lease
Forecasting Financial Performance: Top Down Approach...
DTA/DTL: Effect on Net Income when Tax Rate decreases...
IASB
10. When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote - it also files the statement with the SEC as Form DEF-14A.
Form DEF-14A...
Types of accounting changes: prior period adjustments
Under Completed Contract Method...
Potentially Dillutive Securities
11. Beginning Inv. (BI) + Purchases (P) = Available for Sale - Available for sale - COGS = Ending Inventory (EI)
B/S - Long-term Liabilities
Ending Inventory =
Types of accounting changes: accounting principle
IASB - Goals
12. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability
Taxation Analyst Adjustments...
Inv. Valuation reporting Inventory ABOVE costs...
Types of accounting changes: accounting principle
Cash Flow From Operations (CFO) - IFRS
13. 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
CFI Analysis...
Convergence IFRS/US GAAP...
Comprehensive income...
LIFO is appropriate
14. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Form 8-K...
Financial Liability: US GAAP/Fair Market Value
Gross Reporting of Revenue
Unusual OR Infrequent items...
15. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)
Defined Contribution Plans
Auditor/Audit Opinion
Capitalized Intangibles...
Steps of F/S Analysis
16. 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
B/S - Stockholders' Equity
Impact on the B/S of a Discount Bond...
Funded Status US GAAP & IFRS
IFRS/US GAAP Frameworks: Recognition of Elements...
17. Meet Analyst Expectations - Meet debt covenants - Incentive compensation
Motivation to Over-report Earnings
Barter (IASB & FASB)
Cost included in Inventory on b/s...
Potentially Dillutive Securities
18. +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
Intangibles under IFRS...
Cash Flow From Operations (CFO) - FASB
Taxable Income
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
19. Return on Total Equity = NI/ Avg. Total Equity - Return on C/E = NI - Pref. Div/ Avg. Common Equity
Sales Basis Revenue Recognitions
CFO - Direct/Indirect method
Return on Equity (ROE)...
Roles of financial reporting & analysis include...
20. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
IFRS/US GAAP Frameworks: Recognition of Elements...
Complex Capital Structure
Footnote Finance Liability Disclosure
IFRS: Presentation Requirements
21. All other liabilities (e.g. bonds - notes payables - leases)
Cash Flow From Operations (CFO) - IFRS
Financial Liability: US GAAP/Amortized at Cost
B/S - investments
Revaluation above historic cost...
22. 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
Sales Basis Revenue Recognitions
Inventory Systems...
CFO Disclosure requirement...
Measurement of A & L disclosure in footnotes
23. 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
Finance (capital) Lease criteria (under US GAAP)
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Types of accounting changes: accounting principle
Component depreciation;
24. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
Deferred Tax Asset: (DTA)
Free Cash Flow to the Firm - FCFF
Disclosure for each segment...
Types of accounting changes...
25. 1) Incentive/Pressure (the motive to commit fraud) 2) Opportunity (exists with weak internal controls) 3) Attitude/rationalization (mindset that fraud is justified)
Activity Based Restrictions
IFRS: Required F/S
Fraud Triangle
Operating Risk Ratios...
26. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
IFRS/US GAAP Frameworks: purpose of framework
Inventory Valuatoin (LCM)
Sources of Differences: Permanent
Impact on the B/S of a Premium Bond...
27. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher
Intercorporate Investment: < 20% votes...
Cash Flow: Logic (A = L + E)
Impact on the Cash Flow of a Premium Bond...
Activity Based Restrictions
28. 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)
Warning Signs of Earnings Manipulation
CFO - Direct/Indirect method
Impact on the B/S of a Discount Bond...
Lessor Accounting Capital Lease: Sales-Type Lease
29. 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 From Operations (CFO) - IFRS
Asset Capitalization
Footnote disclosure of Reconciliation of opening and closing carrying values...
IFRS/US GAAP Frameworks: underlying assumptions...
30. Replacement cost subject to: Upper limit = NRV - Loewr limit = NRV - normal profit margin
Intercorporate Investment: < 20% votes...
Market Value (GAAP)...
Simple capital structure
Horizontal Common Size Statements...
31. (GAAP) Internally created intangibles 1) (R&D) are expensed 2) Advertising 3) Software (developed to establish feasibility)
BASIC EPS
IFRS: Presentation Requirements
Expensed Intangibles...
Add/ Sub changes to related b/s operating accounts
32. 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
Free Cash Flow to Equity - FCFE
IASB - Goals
Motivation to Understate Assets/Overstate Liabilities
Antidilutive Securities
33. 1) B/S asset increased to FMV 2) Increase above original cost to equity via revaluation surplus account (comprehensive Income)
Low Quality Earnings is result of...
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
CFO Disclosure requirement...
Revaluation above historic cost...
34. 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
IFRS/US GAAP Frameworks: purpose of framework
Creative Cash Flows Accounting: Technique
Units of Production Method
Form 8-K...
35. 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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36. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
Ending Inventory =
SEC guidance for Revenue Recognition
Deferred Tax Asset: (DTA)
Debt covenants
37. Profit is recognized only when it exceeds estimated total cost.
Cost recovery method...
Return on total capital (ROTC)...
Taxation Disclosure Requirements
Depreciation Methods...
38. Slow moving or obsolete inventory
Inventory mangement: Low T/O (High DOH)...
Add/ Sub changes to related b/s operating accounts
Financial Adj to Facilitate Comparison...
Taxation: Tax Payable
39. 1) Capitalize interst during construction period when building its own operating facility; 2) Interest must actually be paid by the firm; 3) Specific and general debt interest is capitalized
Financial Adj to Facilitate Comparison...
Capitalization of Interest...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Defined Benefit Plans
40. 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
Low Quality Earnings is result of...
Analyst Treaments of DTL
Defined Contribution Plans
Fraud Triangle - 3) Attitude/rationalization
41. 365/(AP T/O) = 365/(purchases/ Avg. AP)
IFRS Revenue Recognition For Service
IASB
# of days payable =
Deferred Tax Asset: (DTA)
42. Shows the financial position of a firm AT A SINGLE POINT in time A = L + E.
Sources of Differences: Temporary
Traditional DuPont Equation...
Operating vs. Non-operating Income
Balance Sheet
43. 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
Revaluation below historic cost...
FIFO after-tax profit =
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Defined Contribution Plans
44. Outflow - (bringing bond DOWN to par)
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Statement of Cash Flow - relevance...
Financial Assets: US GAAP/Fair Market Value
45. Improve ROA and Asset TO Ratios - Report higher aquisition goodwill
Inventory Valuatoin (LCM)
Analyzing Effective Tax Rate Reconciliation
SEC guidance for Revenue Recognition
Motivation to Understate Assets/Overstate Liabilities
46. 1) Results of operations and discussions of trend; 2) Capital resources - liquidity - and cash flow trends; 3) General business overview based on known trends; 4) Effects of trends - events - and uncertainties; 5) Discontinued operations - extraordin
Stock options: Use treasury stock method
Motivation to Under-report Earnings
Analyzing Effective Tax Rate Reconciliation
MD&A contains...
47. 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
Add/ Sub changes to related b/s operating accounts
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Inventory Systems...
Intercorporate Investment: < 20% votes...
48. 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.
DTA Issues
Defined Benefit Obligations (DBO)
Motivation to Under-report Earnings
Return on total capital (ROTC)...
49. Shows the performance of the company over a reporting period.
Finance (capital) Lease criteria GAAP vs. IFRS
IFRS/US GAAP Frameworks: objective of F/S
Income Statement
DTA Issues
50. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method
Intercorporate Investment: 20% - 50% votes...
Inventory Systems...
What is the economic substance of financial (capital) lease?
DTA Issues