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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. Under GAAP 1) Purchased patentes - copyrights - franchises - licenses - brands - and trademarks 2) Direct response advertising 3) Goodwill arising from transactions - (Proceeds - FMV net assets required = goodwill) 4) Software development costs once
Capitalized Intangibles...
Antidilutive Securities
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Financial Ratios based on B/S: Solvency (Coverage)
2. Trade relief - Contingent consideration - Union concessions
Financial Assets: US GAAP/Fair Market Value
Motivation to Under-report Earnings
Financial Ratios based on B/S: Solvency (Coverage)
IASB - Goals
3. 1) Evidence of an arrangement; 2) Completion of earnings process; 3) Price is determined or determinable; 4) Assurance of payment
Financial Ratio based on I/S...
SEC guidance for Revenue Recognition
B/S - Long-lived assets PP&E
Segment Reporting
4. 1) Credit Scoring (CF Forecast) 2) Equity Investment screening (cutoff values)
Component depreciation;
Forecasting Financial Performance: Application
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Impact on the Cash Flow of a Premium Bond...
5. I/S and B/S - Each line is relative to base year
Cash Flow From Financing (USA) (Source of Cash)
IASB - Goals
Horizontal Common Size Statements...
Income Statement
6. 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.
Credit Rating Process...
days of sales o/s =
% of Completion
Financial Liability: US GAAP/Fair Market Value
7. Efficient inventory managment
An Increase in the Valuation Allowance Account...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Tax Loss Carryforward...
Inventory mangement: High T/O (low DOH) and sales growth above industry average
8. 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
DBO Funded Status =
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Financial Implications of Capitalizing...
Finance (capital) Lease criteria GAAP vs. IFRS
9. +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
% of Completion
Return on total capital (ROTC)...
Dilutive Securities
Cash Flow From Operations (CFO) - FASB
10. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower
Taxable Income
Financial Liability: US GAAP/Amortized at Cost
FIFO results in: (assuming inflationary period)
Sales Basis Revenue Recognitions
11. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Balance Sheet
Deferred Tax Liability: (DTL)
Depreciation Methods...
Cash Flow From Operations (CFO) - FASB
12. 365/(AP T/O) = 365/(purchases/ Avg. AP)
# of days payable =
Free Cash Flow to the Firm - FCFF
Valuation Allowance...
Discontinued Operations...
13. 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)
# of days payable =
CFO - Direct/Indirect method
Measurement of A & L disclosure in footnotes
IFRS/US GAAP Frameworks: underlying assumptions...
14. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
BASIC EPS
FASB
Impact on the Cash Flow of a Premium Bond...
Types of accounting changes...
15. Securities that would INCREASE EPS if exercised
Segment Reporting
Antidilutive Securities
Effects of Lease Classification on F/S - Operating Lease
Balance Sheet - formats
16. Is required under IFRS but not under GAAP
Footnote disclosure of Reconciliation of opening and closing carrying values...
Steps of F/S Analysis
Creative Cash Flows Accounting: Technique
The account format of B/S
17. 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
Financial Ration based on B/S: Liquidity Ratios
IASB - Goals
FASB
Cash Flow From Financing (USA) (Source of Cash)
18. BV - cash paid = gain/(loss) + any unamortized issue costs (US only) = Gain/Loss on repurchase [I/S as continuing operations)
Warning Signs of Earnings Manipulation
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Gain/(loss) on bond early retirement: (derecognition of debt)
19. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate
IFRS Revenue Recognition For Service
Intercorporate Investment: < 20% votes...
Sources of Differences: Permanent
Common Size Statement
20. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
An Increase in the Valuation Allowance Account...
Operating vs. Non-operating Income
Activity Based Restrictions
Comprehensive income...
21. Same as other ratios using NI in this case substitut NI for CFO.
Traditional DuPont Equation...
Cash flow ratios
Roles of financial reporting & analysis include...
The report format of B/S
22. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Extended DuPont Equation...
Deferred Tax Liability: (DTL)
days of sales o/s =
23. Primary) Relevance & Reliability - Secondary) Comparability - Lastly) Understandability - user specific
# of days payable =
The 4 Qualitative Characteristics of FASB...
BASIC EPS
Financial Ratios based on B/S: Solvency (Coverage)
24. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Debt covenants
Stock options: Use treasury stock method
Intercorporate Investment: 20% - 50% votes...
Capitalization of Interest...
25. 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
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Net Reporting of Revenue
Impact on the Cash Flow of a Premium Bond...
Low Quality Earnings is result of...
26. 1) installment sales (If collection is certain - rev is recognized at time of sale) 2) installment method: (if collection cannot be estimated) 3) cost recovery (if collectability is highly uncertain)
Effects of Lease Classification on F/S - Finance Lease
Sales Basis Revenue Recognitions
Taxation Analyst Adjustments...
Potentially Dillutive Securities
27. 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)
DTA Issues
Financial Implications of Capitalizing...
Capitalized Intangibles...
Tax Loss Carryforward...
28. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
From creditor POV: Int. Coverage;
Cash Flow From Operations (CFO) - IFRS
Analyzing Effective Tax Rate Reconciliation
Debt covenants
29. Exchange of goods or services between two parties (no cash) IASB: Revenue = FMV of similar non-barter transaction with unrelated parties FASB: Revenue = FMV only if the company has received cash payments for such services in the past
Barter (IASB & FASB)
Antidilutive Securities
Cash Flow From Operations (CFO) - FASB
Balance Sheet
30. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Impact on the B/S of a Zero Coupon Bond...
CFO Disclosure requirement...
Barriers to a single framework...
Defined Contribution Plans
31. 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.
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
days of inv. on hand =
Valuation allowance
32. Profit is recognized only when it exceeds estimated total cost.
Balance Sheet - formats
Operating Risk Ratios...
Cost recovery method...
Taxation Disclosure Requirements
33. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
Traditional DuPont Equation...
Vertical Common Size Statements...
Return on total capital (ROTC)...
Antidilutive Securities
34. 1) Character: Mgmt reputation and history of repayment 2) Collateral: ability to pledge specific collateral reduces lender risk 3) Capacity: ability to replay debt. requires LT view of firms prospect.
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35. Slow moving or obsolete inventory
Inventory mangement: Low T/O (High DOH)...
Balance Sheet - formats
Inv. Valuation reporting Inventory ABOVE costs...
Impact on the Cash Flow of a Par Bond...
36. 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)
Potentially Dillutive Securities
Effects of Lease Classification on F/S - Operating Lease
Sarbanes-Oxley Management Report...
Operating vs. Non-operating Income
37. 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
Screening for Potential Equity Investment: Criteria
Funded Status US GAAP & IFRS
Simple capital structure
The best indicator of overstating its profits is...
38. 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
Potentially Dillutive Securities
Types of accounting changes...
Barter (IASB & FASB)
Unusual OR Infrequent items...
39. 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:
Effective Tax Rate
CFO - Indirect method steps...
The 4 Qualitative Characteristics of IFRS
Double-decline balance (DDB)
40. 1) Show each item as a % of Net Revenue 2) Show each inflow as a % of total inflows 3) Show each outflow as a % of total outflow
Bond Issuance Cost under GAAP/IFRS
% of Completion
Common Size Statement
What is the economic substance of financial (capital) lease?
41. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
SEC guidance for Revenue Recognition
Deferred Tax Asset: (DTA)
The account format of B/S
Impact on the B/S of a Zero Coupon Bond...
42. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
Asset Capitalization
Taxable Income
FASB - Harmonization
Impact on the Cash Flow of a Par Bond...
43. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default
Reasons to Lease...
Financial Ration based on B/S: Liquidity Ratios
Debt covenants
Activity Based Restrictions
44. Companies should not recognize revenue from barter transactions. The additional revenue is likely to improperly boost profits. While an unusually high sales-growth rate may indicate fraud - it could also indicate good management. It's a yellow flag -
The best indicator of overstating its profits is...
IOSCO
Cash flow ratios
FIFO after-tax profit =
45. CFO: no impact - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower (b/c no impact) and CFF is higher
MD&A contains...
4 General Categories for Creditworthiness/Capacity...
Impact on the B/S of a Premium Bond...
Impact on the Cash Flow of a Zero Coupon Bond...
46. Increasing CFI - may indicate growth OR Decreasing CFI or sell capital assets to conserve or generate cash.May result in higher outflows in the future as older assets are replaced or growth conts.
Vertical Common Size Statements...
CFI Analysis...
Auditor/Audit Opinion
Inventory Valuatoin (LCM)
47. 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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48. 1) Consider the growth rate and capital spending levels when determining whether temp diff due to accelerated depre will reverse 2) Look for cumulative differences due to asset impairments and post-retirement benefits 3) Restructuring charges can c
Tax base of an asset
IFRS/US GAAP Frameworks: Measurement of Elements...
Implication for Analysts: Be aware of differences in tax reconcilation between periods
CFO - Direct/Indirect method
49. 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
Activity Ratios
Motivation to Overstate Assets/Understate Liabilities
Forecasting Financial Performance: Application
Valuation Allowance...
50. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Creative Cash Flows Accounting: Motivation
Trade-Offs Qualitative Characteristics of IFRS
Stock options: Use treasury stock method
Impact on the B/S of a Premium Bond...