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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.
If you are not ready to take this test, you can
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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. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
Impact on the Cash Flow of a Par Bond...
CFO Disclosure requirement...
Cash Flow From Operations (CFO) - FASB
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
2. Depreciation exp = (cost - residual value) x (# units produced / total expected to produce)
Units of Production Method
Balance Sheet
IASB
Impact on the Cash Flow of a Zero Coupon Bond...
3. 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
Cash Flow From Operations (CFO) - FASB
Comprehensive income...
Footnote Finance Liability Disclosure
Analyzing Effective Tax Rate Reconciliation
4. 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
Valuation Allowance...
IOSCO
FIFO is appropriate
Capitalized Intangibles...
5. 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
LIFO is appropriate
Cash Flow From Financing (USA) (Source of Cash)
FIFO after-tax profit =
Capitalization of Interest...
6. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
Deferred Tax Liability: (DTL)
Funded Status US GAAP & IFRS
Segment Reporting
Cash Flow: Logic (A = L + E)
7. Diff. in depreciation methods/assumptions; Diff. in inventory methods/assumptions; Diff. in treatment of the effect of exchg rate chgs; Diff. in classifications of investment securities - Goodwill: Internally Generated DON'T capitalize - Purchased =
Financial Adj to Facilitate Comparison...
Taxation: Income Tax Expense
Segment Reporting
Financial Lease Reporting
8. 1) Scale & Diversification - 2) Operational Efficiency - 3) Margin Stability - 4) Leverage
The best indicator of overstating its profits is...
LIFO results in: (assuming inflationary period)
4 General Categories for Creditworthiness/Capacity...
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
9. Stock options - Warrants - Convertible debt - Convertible preferred stock
Income Statement
Potentially Dillutive Securities
Expensed Intangibles...
SEC guidance for Revenue Recognition
10. Trade relief - Contingent consideration - Union concessions
Motivation to Under-report Earnings
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
DBO Funded Status =
SEC guidance for Revenue Recognition
11. Shares are to take over control - Subsidiary - Consolidate financials
Cash Flow From Operations (CFO) - IFRS
Asset Capitalization
Intercorporate Investment: > 50% votes...
Stock options: Use treasury stock method
12. To improve liquidity and leverage ratios
Net Reporting of Revenue
FIFO results in: (assuming inflationary period)
days of inv. on hand =
Motivation to Overstate Assets/Understate Liabilities
13. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
Financial Ratios based on B/S: Solvency ratio
Deferred Tax Asset: (DTA)
days of inv. on hand =
Inv. Valuation reporting Inventory ABOVE costs...
14. ROE = (NI/EBT)x(EBT/EBIT)x(EBIT/Rev)x(Rev/Asset)x(Asset/Eqty) or (tax burden)x(int. burden)x(EBITmargin)x(Aset TO)x(Fin Lvg)
Capitalized Intangibles...
Finance (capital) Lease criteria GAAP vs. IFRS
To investigate the stability of that structure - Kilgore would be best served by looking at...
Extended DuPont Equation...
15. Securities that would INCREASE EPS if exercised
Antidilutive Securities
An Increase in the Valuation Allowance Account...
Income Statement
Valuation allowance
16. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
Financial Assets: US GAAP/Amortized at Cost
Taxation Disclosure Requirements
The account format of B/S
Income Statement
17. 'Assets' - Cash spent on long-term assets - Proceeds from the sale of long-term assets - Cash flow from investments in JVs - affiliates - and long-term investments in securities (trading securities are CFO) - [CFI = Cash additions - cash rcvd on disp
Extraordinary Items: Unusual AND Infrequent items...
Bond Issuance Cost under GAAP/IFRS
Cash Flow From Investing (USA) (Assets)
Income Statement
18. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.
Analysis: Market Value of Debt
IFRS/US GAAP Frameworks: F/S elements...
Defined Benefit Plans
Steps of F/S Analysis
19. 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
Trade-Offs Qualitative Characteristics of IFRS
The account format of B/S
CFO Disclosure requirement...
Form 8-K...
20. Working Capital = CA - CL - Working Capital TO = Rev/Avg. Working Capital - Fixed Asset TO = Rev/Avg Net Fixed Assets
Tax base of an asset
LIFO results in: (assuming inflationary period)
SEC guidance for Revenue Recognition
Activity Ratios
21. 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.
IFRS Revenue Recognition
From creditor POV: Int. Coverage;
Fraud Triangle - 1) Incentive/Pressure
Inventory mangement: Low T/O (High DOH)...
22. 1) Valuation; 2) Standard setting; 3) Measurement
An Increase in the Valuation Allowance Account...
Barriers to a single framework...
Defined Benefit Obligations (DBO)
Inventory Cost Flow Methods...
23. Actual cash outflow for taxes paid during current period
Net Periodic Benefit Costs
Income Tax Paid...
IFRS/US GAAP Frameworks: objective of F/S
Under Completed Contract Method...
24. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same
Effects of Lease Classification on F/S - Operating Lease
Statement of Cash Flow - relevance...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Ratios that directly affect choice of Inventory Account...
25. [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
Diluted EPS
Financial Ratios based on B/S: Solvency (Coverage)
Characteristics of an effective framework
Cash Conversion Cycle =
26. Potentially dilutive securitites [options - warrants - convertible securities]
Complex Capital Structure
Intangibles under IFRS...
Impairments recognition (IFRS)
Financial Adj to Facilitate Comparison...
27. Carrying amount of the liability minus the amount that will be deductible in the future.
Effects of Lease Classification on Ratios - Operating Lease
Tax base on a liability
Lessor Accounting Capital Lease: Sales-Type Lease
Gross Reporting of Revenue
28. 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
Taxation Disclosure Requirements
Characteristics of an effective framework
Motivation to Over-report Earnings
Operating Lease
29. = LIFO ending inventory + LIFO reserve FIFO after-tax profit
FIFO ending inventory =
Statement of Cash Flow - relevance...
days of inv. on hand =
Convergence IFRS/US GAAP...
30. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Taxation: Income Tax Expense
Simple capital structure
Net Reporting of Revenue
Operating vs. Non-operating Income
31. Current Ratio (CA/CL): Higher - Work. Cap (CA -CL): Higher - Asset TO: (Sales/TA): Higher - ROA (EAT/TA): Higher - ROE (EAT/E): Higher - Debt/Equity: Lower - Understates Leverage ratios (b/c not recognized as a liability) - Overstates Coverage ratios
Creative Cash Flows Accounting: Motivation
Effects of Lease Classification on Ratios - Operating Lease
BASIC EPS
Sources of Differences: Permanent
32. 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
Impairments recognition (IFRS)
Asset Capitalization
Finance (capital) Lease criteria GAAP vs. IFRS
Disclosure for each segment...
33. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
Net Periodic Benefit Costs
Types of accounting changes...
FIFO results in: (assuming inflationary period)
Financial Liability: US GAAP/Amortized at Cost
34. 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
Impact on the Cash Flow of a Premium Bond...
Forecasting Financial Performance: Top Down Approach...
Effects of Lease Classification on Ratios - Finance Lease
Operating Risk Ratios...
35. 1) will only benefit on reversal if there is sufficient taxable earnings 2) can only utilize loss carryforwards if we have future profits 3) If asset cannot be utilized in full it is reduced by a contra 'valuation allowance'. REDUCE DTA - REDUCE NI
Under Completed Contract Method...
Stock options: Use treasury stock method
DTA Issues
Revaluation above historic cost...
36. 1) Land @ cost; 2) Plant & building @ historic cost less accu'm depr; 3) Equipment @ historic cost less accu'm depr 4) Intangible assets @ historic cost less accu'm amort
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Free Cash Flow -CFO
B/S - Long-lived assets PP&E
Impact on the B/S of a Discount Bond...
37. 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.
Cash Flow: Logic (A = L + E)
Fraud Triangle - 2) Opportunity
Taxation Analyst Adjustments...
Motivation to Under-report Earnings
38. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Impact on the B/S of a Premium Bond...
IOSCO
Net Realizable Value (NRV) (IFRS)
ROE interpretation: if ROE is low...
39. LIFO after-tax profit + (change in LIFO reserve)(1 - t)
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Operating Lease
FIFO after-tax profit =
Expensed Intangibles...
40. 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 (GAAP)
Sarbanes-Oxley Management Report...
4 General Categories for Creditworthiness/Capacity...
IFRS/US GAAP Frameworks: objective of F/S
41. 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
MD&A contains...
Common Size Statement
Measures of Operating Performance - Efficiency Ratios...
B/S - Stockholders' Equity
42. I/S: COGS higher - EBT lower - Taxes: lower - NI: Lower - B/S: INV: lower - W/C: Lower - are/E: lower - CF: CFO: higher
Motivation to Understate Assets/Overstate Liabilities
LIFO results in: (assuming inflationary period)
Deferred Tax Asset: (DTA)
Taxation Disclosure Requirements
43. +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
Impact on the Cash Flow of a Zero Coupon Bond...
Dilutive Securities
Impact on the Cash Flow of a Discount Bond...
44. Cash collections less direct cash inputs less other cash outfllows
days of sales o/s =
CFO - Direct method
Sarbanes-Oxley Management Report...
Effects of Lease Classification on F/S - Finance Lease
45. 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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46. Management turnover.
Return on Equity (ROE)...
Impact on the B/S of a Premium Bond...
To investigate the stability of that structure - Kilgore would be best served by looking at...
The account format of B/S
47. 'Equity' -Chg in debt - Cash raised from equity and debt - -Chg in c/s - Cash spent on repurchasing equity or redeeming debt -Dividends paid - Calculate dividend declared: NI -*Div.Declared = chg in are/E - Div. Declared +(-) chg in div. payable = c
Inventory Systems...
Cash Flow From Financing (USA) (Source of Cash)
Taxation: Tax Payable
Form DEF-14A...
48. Securities that would DECREASE EPS if exercised - If X< Avg. stock price then could be exercised - If X> Avg. stock price then will not be exercised
Dilutive Securities
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Impact on the Cash Flow of a Premium Bond...
B/S - Long-lived assets
49. 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
Lessor Accounting Capital Lease: Sales-Type Lease
Finance (capital) Lease criteria (under US GAAP)
IFRS/US GAAP Frameworks: objective of F/S
Net Periodic Benefit Costs
50. Both: purpose is to assist development & revision of accting stds - IASB: Firms must consider framework if no std exists - FASB: No express requirement to consider framework
IFRS/US GAAP Frameworks: purpose of framework
IFRS Revenue Recognition For Service
Analyzing Effective Tax Rate Reconciliation
Finance (capital) Lease criteria GAAP vs. IFRS