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Test your basic knowledge |
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. [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
To investigate the stability of that structure - Kilgore would be best served by looking at...
Analyst Treaments of DTL
Diluted EPS
Finance (capital) Lease criteria (under US GAAP)
2. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
The report format of B/S
Market Value (GAAP)...
B/S - Stockholders' Equity
Types of accounting changes...
3. I/S and B/S - Each line is relative to base year
Creative Cash Flows Accounting: Motivation
DBO Funded Status =
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Horizontal Common Size Statements...
4. It is the purchase of an asset using debt finance.
The account format of B/S
What is the economic substance of financial (capital) lease?
Financial Implications of Capitalizing...
Impact on the B/S of a Par Bond...
5. 1st: Net Income - dividends declared = chg in are/E - Then: Dividends declared +/- chg dividends payable = cash dividends paid.
Calculate dividends declared...
IFRS/US GAAP Frameworks: Recognition of Elements...
Sources of Differences: Permanent
Effects of Lease Classification on F/S - Operating Lease
6. ROE = (NI/Sales) x (Sales/Assets) x (Assets/Equity) or ROE= Net Profit Margin x Asset TO x Leverage Ratio
Vertical Common Size Statements...
Financial Lease Reporting
Traditional DuPont Equation...
Revaluation below historic cost...
7. 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.
Vertical Common Size Statements...
Valuation allowance
B/S - Long-lived assets
MD&A contains...
8. Contra asset account used to reduce DTA for probability that it will NOT be realized - Increase in valuation = decrease in DTA and NI - Decrease in valuation = increase in DTA and NI
Financial Lease Reporting
Valuation Allowance...
Financial Implications of Capitalizing...
Impact on the B/S of a Par Bond...
9. Management turnover.
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Ending Inventory =
To investigate the stability of that structure - Kilgore would be best served by looking at...
Measures of Operating Performance - Efficiency Ratios...
10. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Market Value (GAAP)...
Cash Flow From Financing (USA) (Source of Cash)
IFRS: Required F/S
Impact on the B/S of a Premium Bond...
11. 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
Reasons to Lease...
Taxation: Tax Payable
Forecasting Financial Performance: Top Down Approach...
Credit Analysis: Ratios
12. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Measures of Operating Performance - Efficiency Ratios...
DTA Issues
CFO - Indirect method steps...
Footnote disclosure of Reconciliation of opening and closing carrying values...
13. Taxes payable + chg deferred Tax as per Financial Report
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Taxation: Income Tax Expense
Return on Equity (ROE)...
Revaluation above historic cost...
14. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
Sustainable Growth
Impact on the Cash Flow of a Par Bond...
4 General Categories for Creditworthiness/Capacity...
Ending Inventory =
15. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
Measures of Operating Performance - Efficiency Ratios...
Trade-Offs Qualitative Characteristics of IFRS
Inv. Valuation reporting Inventory ABOVE costs...
Sustainable Growth
16. 1) Responsibility to establish and maintain adequate internal controls 2) Mgmt's framework for evaluating internal controls 3) Assessment of the effectiveness of internal controls over the last operating period 4) Statement of auditor's attestment 5)
Sarbanes-Oxley Management Report...
DBO Funded Status =
Financial Liability: US GAAP/Amortized at Cost
Segment Reporting
17. 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
IFRS Revenue Recognition For Service
Convergence IFRS/US GAAP...
Potentially Dillutive Securities
Impact on the B/S of a Zero Coupon Bond...
18. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
Footnote disclosure of Reconciliation of opening and closing carrying values...
Deferred Tax Liability: (DTL)
Discontinued Operations...
B/S - short-term investments
19. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Cash Flow From Operations (CFO) - IFRS
Stock options: Use treasury stock method
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Defined Benefit Plans
20. Means that at least ONE of the following is true: Company has poor profit margin; Company has poor asset TO; Company is underleveraged
Effects of Lease Classification on Ratios - Finance Lease
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Defined Benefit Obligations (DBO)
ROE interpretation: if ROE is low...
21. Income subject to tax as per Tax Return
Taxable Income
Fraud Triangle - 1) Incentive/Pressure
Free Cash Flow to Equity - FCFE
Footnote Finance Liability Disclosure
22. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
Free Cash Flow -CFO
Free Cash Flow to the Firm - FCFF
Financial Adj to Facilitate Comparison...
Cash Flow From Operations (CFO) - IFRS
23. 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.
B/S - Long-lived assets
Form 8-K...
% of Completion
Tax base of an asset
24. Both: General agreement on objectives; focus on wide range of users - IASB: One objective for all users - FASB: Separate objectives for business entities and non-business entities.
Impairments recognition (IFRS)
IFRS/US GAAP Frameworks: objective of F/S
Cost included in Inventory on b/s...
Add/ Sub changes to related b/s operating accounts
25. NI/Avg. Total Assets - NI + Int (1-t) / Avg. Total Assets - Operating ROA: Operating INc/ Avg. Total Assets
Trade-Offs Qualitative Characteristics of IFRS
IFRS Revenue Recognition
Diluted EPS
Return on Assets ROA...
26. 1)DTL - DTA - valuation allowance - Net ? in valutaion allowance over the period 2) unrecognized DTL or undistributed earning from subsidiaries & JVs 3) Current yr tax effect of each type of temp difference 4)Components of Inc Tax Expense 5)Tax loss
Sources of Differences: Temporary
Lessor Accounting Capital Lease: Sales-Type Lease
Gain/(loss) on bond early retirement: (derecognition of debt)
Taxation Disclosure Requirements
27. Ensure that information in f/s is useful to a wide range of users.
Measures of Operating Performance - Efficiency Ratios...
Sources of Differences betweent F/S & T/
Impact on the B/S of a Par Bond...
The objective of f/s is to...
28. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Dilutive Securities
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
LIFO is appropriate
29. Fair Value of Plan Assets - Defined Benefit Obligation (DBO) - Fair Value > DBO: overfunded (asset on B/S - GAAP) - Fair Value < DBO: underfunded (liability on B/S - GAAP) - (Funded Status = Economic Position of Plan)
Fraud Triangle
Effects of Lease Classification on Ratios - Operating Lease
DBO Funded Status =
Measures of Operating Performance - Efficiency Ratios...
30. 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
Fraud Triangle - 3) Attitude/rationalization
What is the economic substance of financial (capital) lease?
Financial Ratio based on I/S...
Measures of Operating Performance - Efficiency Ratios...
31. 1) Evaluating equity investments for a portfolio; 2) Evaluating potential M&A; 3) Evaluating a subsidiary of a parent company; 4) Deciding on private equity/ venture cap investment 5) Determine creditworthiness - borrowing; 6) Extending credit to
What is the economic substance of financial (capital) lease?
# of days payable =
Roles of financial reporting & analysis include...
Balance Sheet
32. Profit is recognized only when it exceeds estimated total cost.
Common Size Statement
CFI Analysis...
Income Tax Paid...
Cost recovery method...
33. 1) Nature of industry/entity operations: 3rd party transactions; Power of customer/supplier; Acct est subjective; Unusual transactions; International operations; International operations; Operations in tax havens. 2) Opportunity complex/unstable org.
IFRS: Presentation Requirements
Fraud Triangle - 2) Opportunity
Impact on the B/S of a Premium Bond...
Intangible Assets
34. Securities that would INCREASE EPS if exercised
Impact on the Cash Flow of a Zero Coupon Bond...
Under Completed Contract Method...
Antidilutive Securities
Debt covenants
35. 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
Extraordinary Items: Unusual AND Infrequent items...
days of sales o/s =
Analyzing Effective Tax Rate Reconciliation
# of days payable =
36. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Fraud Triangle - 2) Opportunity
Effective Tax Rate
Effects of Lease Classification on F/S - Operating Lease
Trade-Offs Qualitative Characteristics of IFRS
37. Cash collections less direct cash inputs less other cash outfllows
Taxation Analyst Adjustments...
CFO - Direct method
Types of accounting changes: accounting estimate
FIFO is appropriate
38. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Financial Ratios based on B/S: Solvency (Coverage)
Creative Cash Flows Accounting: Motivation
Simple capital structure
Free Cash Flow -CFO
39. NRV = Est. selling cost - Est. cost of complition - selling costs
Sources of Differences: Permanent
Cash Flow: Logic (A = L + E)
Net Realizable Value (NRV) (IFRS)
CFO - Indirect method steps...
40. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes
Financial Ratios based on B/S: Solvency ratio
Effective Tax Rate
Types of accounting changes: accounting estimate
Fraud Triangle - 1) Incentive/Pressure
41. Held for continuing use within the business (not for resale) 1) investment property; 2) Assets held for sale; 3) Natural resources; 4) PP&E
B/S - Long-lived assets
Return on Assets ROA...
Impairments recognition (IFRS)
Low Quality Earnings is result of...
42. Working Capital = CA - CL - Working Capital TO = Rev/Avg. Working Capital - Fixed Asset TO = Rev/Avg Net Fixed Assets
Intangibles under IFRS...
Activity Ratios
IFRS: Presentation Requirements
Motivation to Under-report Earnings
43. 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
Discontinued Operations...
Operating Risk Ratios...
Extended DuPont Equation...
The 4 Qualitative Characteristics of FASB...
44. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same
FIFO is appropriate
Effects of Lease Classification on F/S - Operating Lease
IFRS/US GAAP Frameworks: F/S elements...
Creative Cash Flows Accounting: Motivation
45. Divdends and share repurchases - Production and investment - M&A - New debt issuance - Payoff pattern and liquidation priority - Maintenance of assets used as collateral
Defined Benefit Plans
FASB
Finance (capital) Lease criteria GAAP vs. IFRS
Activity Based Restrictions
46. Beginning Inv. (BI) + Purchases (P) = Available for Sale - Available for sale - COGS = Ending Inventory (EI)
Balance Sheet
# of days payable =
Ending Inventory =
IFRS: Presentation Requirements
47. 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...
Diluted EPS
Inventory mangement: Low T/O (High DOH)...
Statement of Cash Flow - relevance...
48. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.
Complex Capital Structure
IFRS/US GAAP Frameworks: underlying assumptions...
Taxation Analyst Adjustments...
Financial Ration based on B/S: Liquidity Ratios
49. 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
Defined Benefit Plans
BASIC EPS
CFO Disclosure requirement...
Operating Lease
50. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Valuation Allowance...
Debt covenants
Return on total capital (ROTC)...
Depreciation Methods...