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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. Improve ROA and Asset TO Ratios - Report higher aquisition goodwill
Roles of financial reporting & analysis include...
Financial Adj to Facilitate Comparison...
Valuation allowance
Motivation to Understate Assets/Overstate Liabilities
2. 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)
Extended DuPont Equation...
Effects of Lease Classification on F/S - Operating Lease
Income Tax Paid...
Activity Ratios
3. '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
Cash Flow From Financing (USA) (Source of Cash)
Market Value (GAAP)...
Sources of Differences betweent F/S & T/
Asset Revaluation: IFRS
4. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Lessor Accounting Capital Lease: Sales-Type Lease
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
An Increase in the Valuation Allowance Account...
Operating vs. Non-operating Income
5. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method
Intercorporate Investment: 20% - 50% votes...
Form 8-K...
Capitalized Intangibles...
Analyst Treaments of DTL
6. 1) Balance Sheet; 2) Comprehensive Income; 3) Change in Equity; 4) Cash Flow Statement; 5) Accounting policies and notes.
The account format of B/S
IFRS: Required F/S
Impact on the Cash Flow of a Par Bond...
Deferred Tax Asset: (DTA)
7. '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
Deferred Tax Asset: (DTA)
Ending Inventory =
Intangibles under IFRS...
Cash Flow From Investing (USA) (Assets)
8. Shows the performance of the company over a reporting period.
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Operating Risk Ratios...
Tax Loss Carryforward...
Income Statement
9. Income Tax Expense/Pretax Income (EBIT) Income Tax Exp. = Taxes payable + chg in deferred ta
Effective Tax Rate
Form 8-K...
To investigate the stability of that structure - Kilgore would be best served by looking at...
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
10. 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 =
B/S - Long-lived assets PP&E
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Analyzing Effective Tax Rate Reconciliation
Financial Adj to Facilitate Comparison...
11. 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)
Sales Basis Revenue Recognitions
Valuation allowance
ROE interpretation: if ROE is low...
Effects of Lease Classification on F/S - Finance Lease
12. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
4 General Categories for Creditworthiness/Capacity...
CFO Disclosure requirement...
Sarbanes-Oxley Management Report...
Asset Revaluation: IFRS
13. EU 1) Int'l Accounting Standards Board; 2) Unified int'l frameworks of accounting standards (IFRS); 3) Addopted by EU in 2005
IASB
Debt covenants
Financial Ratios based on B/S: Solvency (Coverage)
Taxation Analyst Adjustments...
14. NRV = Est. selling cost - Est. cost of complition - selling costs
Low Quality Earnings is result of...
Comprehensive income...
Intercorporate Investment: > 50% votes...
Net Realizable Value (NRV) (IFRS)
15. 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
Inventory Systems...
Discontinued Operations...
Financial Ratio based on I/S...
16. 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
Effective Tax Rate
Low Quality Earnings is result of...
Balance Sheet
17. 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
Extended DuPont Equation...
Low Quality Earnings is result of...
Units of Production Method
DTA Issues
18. Same as other ratios using NI in this case substitut NI for CFO.
Intangibles under IFRS...
Segment Reporting
Cash flow ratios
The objective of f/s is to...
19. Shows sales and cost of goods sold.Under GAAP: 1) must be primary obligor under the contract; 2) bear inventory and credit risk; 3) have the ability to choose its supplier; 4) have reasonable latitude to set the price.
Gross Reporting of Revenue
Intangibles under IFRS...
Simple capital structure
Free Cash Flow to Equity - FCFE
20. Research = Expensed Development may be capitalized when the following critera is met: (ie if in the Development stage and NOT research stage) 1) process is clearly identified 2) Cost can be clearly idenfified 3) Technical feasibility established 4) M
SEC guidance for Revenue Recognition
Sarbanes-Oxley Management Report...
Intangibles under IFRS...
4 General Categories for Creditworthiness/Capacity...
21. Assess liquidity - solvency and financial flexibiliy
LIFO results in: (assuming inflationary period)
Inventory Valuatoin (LCM)
Credit Analysis: Ratios
Statement of Cash Flow - relevance...
22. 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.
Fraud Triangle - 2) Opportunity
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Impact on the B/S of a Par Bond...
23. Net income + non-cash charges - working cap investment
Impact on the B/S of a Par Bond...
CFO - Indirect method steps...
Free Cash Flow -CFO
Financial Adj to Facilitate Comparison...
24. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Financial Liability: US GAAP/Fair Market Value
Taxation: Tax Payable
Financial Ratio based on I/S...
Free Cash Flow -CFO
25. 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
Ratios that directly affect choice of Inventory Account...
% of Completion
CFO - Indirect method steps...
Footnote Finance Liability Disclosure
26. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
Inventory mangement: Low T/O (High DOH)...
IFRS/US GAAP Frameworks: objective of F/S
Asset Capitalization
Types of accounting changes...
27. For inventory that does not deteriorate with age.
LIFO is appropriate
Financial Lease Reporting
B/S - Stockholders' Equity
Cash Flow From Operations (CFO) - FASB
28. 1) Scale & Diversification - 2) Operational Efficiency - 3) Margin Stability - 4) Leverage
Financial Implications of Capitalizing...
Warning Signs of Earnings Manipulation
days of sales o/s =
4 General Categories for Creditworthiness/Capacity...
29. 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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30. Carrying amount of the liability minus the amount that will be deductible in the future.
IFRS: Presentation Requirements
IFRS/US GAAP Frameworks: Recognition of Elements...
Tax base on a liability
FASB
31. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Intangibles under IFRS...
IFRS Revenue Recognition For Service
32. GAAP: shown as a separate prepaid asset and amortized - IFRS: Deducted from proceeds and liability therefore effective interest rate is HIGHER under IFRS than GAAP.
Taxation: Tax Payable
Impact on the Cash Flow of a Zero Coupon Bond...
Bond Issuance Cost under GAAP/IFRS
3 C's for Credit Analysis...
33. 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 -
BASIC EPS
LIFO results in: (assuming inflationary period)
Financial Assets: US GAAP/Amortized at Cost
The best indicator of overstating its profits is...
34. 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.
Vertical Common Size Statements...
Defined Benefit Obligations (DBO)
Steps of F/S Analysis
IFRS: Required F/S
35. Held for continuing use within the business (not for resale) 1) investment property; 2) Assets held for sale; 3) Natural resources; 4) PP&E
Inventory Cost Flow Methods...
B/S - Long-lived assets
Motivation to Understate Assets/Overstate Liabilities
Impact on the Cash Flow of a Discount Bond...
36. Outflow - (bringing bond DOWN to par)
Free Cash Flow to the Firm - FCFF
CFO - Direct method
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Complex Capital Structure
37. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Barter (IASB & FASB)
Steps of F/S Analysis
Form 8-K...
38. 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
Funded Status US GAAP & IFRS
Barter (IASB & FASB)
B/S - Long-lived assets PP&E
Inventory Valuatoin (LCM)
39. Cash collections less direct cash inputs less other cash outfllows
Taxable Income
CFO - Direct method
B/S - Stockholders' Equity
Financial Liability: US GAAP/Amortized at Cost
40. 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.
IFRS: Presentation Requirements
Financial Lease Reporting
Measurement of A & L disclosure in footnotes
Balance Sheet - formats
41. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
The 4 Qualitative Characteristics of IFRS
Asset Capitalization
Measures of Operating Performance - Efficiency Ratios...
Horizontal Common Size Statements...
42. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Financial Ration based on B/S: Liquidity Ratios
Inventory Valuatoin (LCM)
Cash Flow From Operations (CFO) - FASB
43. Profit recognized is the proportion of cash collected x total expected profit Revenue = (COG provided to date/total COG to be provided) x total expected revenue
Types of accounting changes: accounting principle
Installment Method...
Analyst Treaments of DTL
IFRS/US GAAP Frameworks: Recognition of Elements...
44. EU & US 1) Int'l Org. of Securities Commission; 2) Goal: uniform regulation; 3) Core objectives: Protecting investor - Fair - transparent - efficient markets - Reduction of systematic risk
IOSCO
Warning Signs of Earnings Manipulation
Low Quality Earnings is result of...
Defined Benefit Plans
45. Beginning Inv. (BI) + Purchases (P) = Available for Sale - Available for sale - COGS = Ending Inventory (EI)
Barriers to a single framework...
Lessor Accounting Capital Lease: Sales-Type Lease
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Ending Inventory =
46. ROE = (NI/Sales) x (Sales/Assets) x (Assets/Equity) or ROE= Net Profit Margin x Asset TO x Leverage Ratio
Impact on the B/S of a Premium Bond...
Operating Lease
Traditional DuPont Equation...
Taxation Analyst Adjustments...
47. CFO = NI - means high quality of earnings but may be affect by the stage of business cycle and firm's life cycle - CFO > NI - means premature recognition of revenue or delayed recognition of expenses.
Auditor/Audit Opinion
Trade-Offs Qualitative Characteristics of IFRS
Sustainable Growth
CFO Analysis...
48. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
CFO - Direct/Indirect method
Cash Flow From Operations (CFO) - FASB
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
49. Cash Flow available for distribution to all investors (stockholders & debt holders) CFO + int(1-t) - fixed capital investment or [FCFF calculated from NI = NI + noncash charged + (Int exp(1-tax rate) - net cap investment - working capital invt.]
days of sales o/s =
Revaluation below historic cost...
Free Cash Flow to the Firm - FCFF
B/S - short-term investments
50. Assets: higher - Liabilities: Higher - NI (Early yrs): Lower - CFO: Higher (b/c only interest portion is classed as CFO) - CFF: Lower (b/c principal repayment portion) - Total CF: Same - Since Int. exp + depre > lease pymt in the early years. This de
Motivation to Over-report Earnings
Effects of Lease Classification on F/S - Finance Lease
Trade-Offs Qualitative Characteristics of IFRS
Free Cash Flow to the Firm - FCFF