SUBJECTS
|
BROWSE
|
CAREER CENTER
|
POPULAR
|
JOIN
|
LOGIN
Business Skills
|
Soft Skills
|
Basic Literacy
|
Certifications
About
|
Help
|
Privacy
|
Terms
|
Email
Search
Test your basic knowledge |
Advanced Financial Reporting And Analysis
Start Test
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. To improve liquidity and leverage ratios
Funded Status US GAAP & IFRS
Motivation to Overstate Assets/Understate Liabilities
Intercorporate Investment: > 50% votes...
Financial Ration based on B/S: Liquidity Ratios
2. Potentially dilutive securitites [options - warrants - convertible securities]
B/S - Long-lived assets PP&E
Trade-Offs Qualitative Characteristics of IFRS
Complex Capital Structure
days of sales o/s =
3. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Straight-line depreciation (SL)
Trade-Offs Qualitative Characteristics of IFRS
Complex Capital Structure
Inventory mangement: High T/O (low DOH) and sales growth above industry average
4. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Defined Contribution Plans
Inventory Valuatoin (LCM)
Credit Rating Process...
Financial Liability: US GAAP/Amortized at Cost
5. 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
Analyzing Effective Tax Rate Reconciliation
Net Reporting of Revenue
Activity Based Restrictions
Financial Adj to Facilitate Comparison...
6. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Impact on the B/S of a Premium Bond...
Cash Flow From Investing (USA) (Assets)
Taxation: Tax Payable
Operating Lease
7. 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.
Auditor/Audit Opinion
Traditional DuPont Equation...
Sustainable Growth
IFRS: Presentation Requirements
8. Higher share price - Lower borrowing cost - Higher incentive compensation
Creative Cash Flows Accounting: Motivation
B/S - Long-lived assets PP&E
Taxation: Tax Payable
Fraud Triangle - 3) Attitude/rationalization
9. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method
Sources of Differences: Permanent
Calculate dividends declared...
Form 8-K...
Intercorporate Investment: 20% - 50% votes...
10. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
FASB
Activity Ratios
Impact on the Cash Flow of a Par Bond...
Barter (IASB & FASB)
11. 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)
Ratios that directly affect choice of Inventory Account...
Fraud Triangle - 1) Incentive/Pressure
Reasons to Lease...
Expensed Intangibles...
12. Interest expense = Coupon rate
B/S - Long-term Liabilities
Impact on the B/S of a Par Bond...
Vertical Common Size Statements...
Effects of Lease Classification on Ratios - Finance Lease
13. 1) Intention to hold >1 year (e.g. debt or equity) valued @ cost or mkt value 2) Equity accounted investments
Effects of Lease Classification on F/S - Finance Lease
The best indicator of overstating its profits is...
Intercorporate Investment: 20% - 50% votes...
B/S - investments
14. Net income + non-cash charges - working cap investment
Free Cash Flow -CFO
Tax base on a liability
Characteristics of an effective framework
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
15. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality
Warning Signs of Earnings Manipulation
days of inv. on hand =
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Inventory Valuatoin (LCM)
16. 2 step-process 1) Recoverability: carrying value > undiscounted CF from asset's use and disposal 2) Loss measurement: Loss is the excess of carrying value over the asset's fair market value or PV of cash flows - Loss reversal for held-for-use assets
Cash Flow: Logic (A = L + E)
Impairments recognition (GAAP)
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Financial Ratio based on I/S...
17. 1) Incentive/Pressure (the motive to commit fraud) 2) Opportunity (exists with weak internal controls) 3) Attitude/rationalization (mindset that fraud is justified)
BASIC EPS
Roles of financial reporting & analysis include...
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Fraud Triangle
18. 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
Characteristics of an effective framework
Financial Implications of Capitalizing...
Financial Ratios based on B/S: Solvency (Coverage)
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
19. You.S. GAAP
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Warning Signs of Earnings Manipulation
Lessor Accounting Capital Lease: Sales-Type Lease
Gain/(loss) on bond early retirement: (derecognition of debt)
20. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher
Activity Based Restrictions
Impairments recognition (GAAP)
Impact on the Cash Flow of a Premium Bond...
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
21. 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.
Finance (capital) Lease criteria (under US GAAP)
Debt covenants
SEC guidance for Revenue Recognition
IFRS/US GAAP Frameworks: objective of F/S
22. 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)
Add/ Sub changes to related b/s operating accounts
Creative Cash Flows Accounting: Motivation
4 General Categories for Creditworthiness/Capacity...
B/S - short-term investments
23. NRV = Est. selling cost - Est. cost of complition - selling costs
Net Realizable Value (NRV) (IFRS)
Characteristics of an effective framework
Analysis: Market Value of Debt
Stock options: Use treasury stock method
24. 365/(AR T/O) = 365/(Rev/Avg. AR)
Discontinued Operations...
days of sales o/s =
Net Periodic Benefit Costs
Impairments recognition (GAAP)
25. Depreciation exp = (cost - accum depre)/useful life x 2 - Does NOT use residual value but depreciation stops when residual value has been reached - reduce EBIT - NI - Assets - Equity and decrease ROA & ROE
IFRS/US GAAP Frameworks: objective of F/S
Lessor Accounting Capital Lease: Sales-Type Lease
Double-decline balance (DDB)
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
26. Timing differences (depreciations) - Permanent differences
Financial Ratios based on B/S: Solvency (Coverage)
Barriers to a single framework...
Sources of Differences betweent F/S & T/
Common Size Statement
27. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates
Asset Capitalization
Fraud Triangle
BASIC EPS
Sources of Differences: Temporary
28. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
Taxation Disclosure Requirements
Sarbanes-Oxley Management Report...
B/S - Long-lived assets PP&E
FASB - Harmonization
29. Used when estimates of revenue or cost are unreliable or short-term contracts - (US GAAP only) Revenue - expense - and profit is recognized at completion (IFRS) Revenue is recognized to the extent of contract cost - cost are expensed when incureed
IFRS: Presentation Requirements
Valuation Allowance...
Under Completed Contract Method...
Component depreciation;
30. Assess liquidity - solvency and financial flexibiliy
Motivation to Over-report Earnings
To investigate the stability of that structure - Kilgore would be best served by looking at...
Free Cash Flow to the Firm - FCFF
Statement of Cash Flow - relevance...
31. (net income - preferred dividends)/weighted average of common shares outstanding - only income from continuing operations is considered
Financial Ratio based on I/S...
Cost included in Inventory on b/s...
Footnote Finance Liability Disclosure
BASIC EPS
32. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
IFRS/US GAAP Frameworks: purpose of framework
Income Statement
Cash Flow From Operations (CFO) - FASB
Add/ Sub changes to related b/s operating accounts
33. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
% of Completion
Stock options: Use treasury stock method
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Fraud Triangle - 1) Incentive/Pressure
34. Tax Rate down: DTL down -> Inc. Tax Exp down -> NI up - DTA down -> Inc. Tax Exp up -> NI down
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
FIFO ending inventory =
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
35. ROE = (NI/Sales) x (Sales/Assets) x (Assets/Equity) or ROE= Net Profit Margin x Asset TO x Leverage Ratio
FIFO results in: (assuming inflationary period)
IFRS Revenue Recognition
Cash Flow From Financing (USA) (Source of Cash)
Traditional DuPont Equation...
36. I/S: COGS higher - EBT lower - Taxes: lower - NI: Lower - B/S: INV: lower - W/C: Lower - are/E: lower - CF: CFO: higher
LIFO results in: (assuming inflationary period)
The report format of B/S
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
% of Completion
37. 1) 3rd party pressure: 1) analyst/institutional expectations; 2) need to obtain finance; 3) listing requirements; 4) Debt covenants; 5) Transactions 2) Directors' Financial Position: 1) Equity interest; 2) Stock options; 3) Personal debt guarantees.
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
IFRS/US GAAP Frameworks: Measurement of Elements...
Motivation to Overstate Assets/Understate Liabilities
Fraud Triangle - 1) Incentive/Pressure
38. 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
Cash Flow From Operations (CFO) - IFRS
Financial Ratios based on B/S: Solvency (Coverage)
MD&A contains...
The objective of f/s is to...
39. 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...
Asset Revaluation: IFRS
Sales Basis Revenue Recognitions
FIFO results in: (assuming inflationary period)
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
LIFO results in: (assuming inflationary period)
IASB
Taxation: Income Tax Expense
Lessor Accounting Capital Lease: Sales-Type Lease
41. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
FASB
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
The account format of B/S
Debt covenants
42. 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
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
IFRS/US GAAP Frameworks: Measurement of Elements...
4 General Categories for Creditworthiness/Capacity...
Discontinued Operations...
43. 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
Types of accounting changes: accounting estimate
Measurement of A & L disclosure in footnotes
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
The objective of f/s is to...
44. Shares are to take over control - Subsidiary - Consolidate financials
Intercorporate Investment: > 50% votes...
% of Completion
Financial Ration based on B/S: Liquidity Ratios
CFO Analysis...
45. Means that at least ONE of the following is true: Company has poor profit margin; Company has poor asset TO; Company is underleveraged
Impairments recognition (GAAP)
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
CFO - Indirect method steps...
ROE interpretation: if ROE is low...
46. 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: F/S elements...
Creative Cash Flows Accounting: Technique
Tax Loss Carryforward...
Intercorporate Investment: 20% - 50% votes...
47. Outflow - (bringing bond DOWN to par)
DBO Funded Status =
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Debt covenants
Units of Production Method
48. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
Roles of financial reporting & analysis include...
Creative Cash Flows Accounting: Technique
Types of accounting changes...
Taxation Analyst Adjustments...
49. Slow moving or obsolete inventory
LIFO results in: (assuming inflationary period)
Inventory mangement: Low T/O (High DOH)...
B/S - Long-lived assets PP&E
Financial Liability: US GAAP/Amortized at Cost
50. +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
Cash Flow From Operations (CFO) - FASB
Potentially Dillutive Securities
Operating vs. Non-operating Income
LIFO is appropriate