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. 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
Defined Contribution Plans
Balance Sheet
Free Cash Flow -CFO
2. 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)
Defined Contribution Plans
Under Completed Contract Method...
Types of accounting changes: accounting principle
CFO - Direct/Indirect method
3. Depreciation exp = (cost-residual value)/ useful life
Financial Liability: US GAAP/Fair Market Value
Free Cash Flow -CFO
Straight-line depreciation (SL)
CFO - Indirect method steps...
4. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Cash Flow From Operations (CFO) - FASB
Stock options: Use treasury stock method
IOSCO
Add/ Sub changes to related b/s operating accounts
5. 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:
Fraud Triangle - 1) Incentive/Pressure
CFO - Indirect method steps...
Activity Based Restrictions
Financial Liability: US GAAP/Amortized at Cost
6. Primary) Relevance & Reliability - Secondary) Comparability - Lastly) Understandability - user specific
The 4 Qualitative Characteristics of FASB...
An Increase in the Valuation Allowance Account...
Capitalization of Interest...
Add/ Sub changes to related b/s operating accounts
7. Periodic: Inventory and COGS determined at p/e - Perpetual: Inv. & COGS updated for each sale (no purchase account need) - Cost flow method impact: FIFO = same for both - LIFO = different - Avg. cost = different - FIFO & LIFO relationship remain
Tax Loss Carryforward...
Inventory Systems...
CFO - Direct/Indirect method
Financial Ratio based on I/S...
8. 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)
Valuation allowance
Cash Flow From Financing (USA) (Source of Cash)
Fraud Triangle - 1) Incentive/Pressure
Sales Basis Revenue Recognitions
9. 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
Gain/(loss) on bond early retirement: (derecognition of debt)
LIFO results in: (assuming inflationary period)
Implication for Analysts: Be aware of differences in tax reconcilation between periods
IFRS/US GAAP Frameworks: Measurement of Elements...
10. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)
Depreciation Methods...
Operating vs. Non-operating Income
Types of accounting changes: prior period adjustments
Effects of Lease Classification on Ratios - Finance Lease
11. Funds from Operations to debt = NI adj for non cash items/ total debt - Free operating CF to Total Debt = CFO - Capex / total debt - Total Debt to EBITDA = total debt / EBITDA - Return on Capital = EBIT / Capital - Total debt to total debt + equity =
Complex Capital Structure
Ending Inventory =
Credit Analysis: Ratios
FASB
12. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates
Sources of Differences: Temporary
Types of accounting changes: prior period adjustments
Defined Contribution Plans
Extraordinary Items: Unusual AND Infrequent items...
13. 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
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Motivation to Understate Assets/Overstate Liabilities
Installment Method...
Free Cash Flow to the Firm - FCFF
14. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
Operating Lease
Form 144...
Asset Revaluation: IFRS
Depreciation Methods...
15. 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 Conversion Cycle =
Footnote Finance Liability Disclosure
CFO Disclosure requirement...
Roles of financial reporting & analysis include...
16. Required by IFRS - Permited by US GAAP
Inv. Valuation reporting Inventory ABOVE costs...
Component depreciation;
Motivation to Overstate Assets/Understate Liabilities
Impact on the Cash Flow of a Zero Coupon Bond...
17. When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote - it also files the statement with the SEC as Form DEF-14A.
Form DEF-14A...
LIFO is appropriate
Forecasting Financial Performance: Top Down Approach...
FIFO is appropriate
18. 1) if 50% of its revenue is earned externally 2) if a business area has at least 10% of a firm's: Revenue; or Operating profit; or Use of asset 3) Business and geographical segments
CFO - Direct/Indirect method
Expensed Intangibles...
Segment Reporting
B/S - Long-lived assets
19. Outflow - (bringing bond DOWN to par)
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
The 4 Qualitative Characteristics of IFRS
Intangible Assets
Impact on the B/S of a Zero Coupon Bond...
20. 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.
CFO Analysis...
Motivation to Over-report Earnings
Net Realizable Value (NRV) (IFRS)
Valuation allowance
21. 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)
Financial Ration based on B/S: Liquidity Ratios
Extended DuPont Equation...
Potentially Dillutive Securities
Types of accounting changes: accounting principle
22. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
To investigate the stability of that structure - Kilgore would be best served by looking at...
Return on Equity (ROE)...
IFRS Revenue Recognition
IFRS: Presentation Requirements
23. 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...
Cash Flow From Investing (USA) (Assets)
Extended DuPont Equation...
Impact on the B/S of a Zero Coupon Bond...
24. 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 =
Ratios that directly affect choice of Inventory Account...
Market Value (GAAP)...
Financial Adj to Facilitate Comparison...
B/S - Long-term Liabilities
25. Potentially dilutive securitites [options - warrants - convertible securities]
Complex Capital Structure
FIFO after-tax profit =
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Sarbanes-Oxley Management Report...
26. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.
Barter (IASB & FASB)
Return on total capital (ROTC)...
IFRS/US GAAP Frameworks: F/S elements...
Capitalized Intangibles...
27. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
Deferred Tax Liability: (DTL)
Impact on the Cash Flow of a Par Bond...
Impact on the Cash Flow of a Discount Bond...
Financial Assets: US GAAP/Amortized at Cost
28. Reported BELOW the line.Prohibited under IAS1 1) Losses from expropriation of assets. 2) Uninsured losses from natural disasters - Analyst must determine if it is really THAT extraordinary and if should be included in forecasting
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Barter (IASB & FASB)
Extraordinary Items: Unusual AND Infrequent items...
Inventory Cost Flow Methods...
29. 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.]
Free Cash Flow to the Firm - FCFF
Form DEF-14A...
Statement of Cash Flow - relevance...
Intercorporate Investment: 20% - 50% votes...
30. = LIFO ending inventory + LIFO reserve FIFO after-tax profit
An Increase in the Valuation Allowance Account...
FIFO ending inventory =
Intercorporate Investment: 20% - 50% votes...
3 C's for Credit Analysis...
31. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality
Under Completed Contract Method...
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
CFO - Direct method
Gross Reporting of Revenue
32. GAAP: more quantitative rules - IFRS: more qualitative approach based on whether the risks and reward of the asset have tranferred.
Finance (capital) Lease criteria GAAP vs. IFRS
Return on Equity (ROE)...
Straight-line depreciation (SL)
IFRS Revenue Recognition For Service
33. Is more relevant than book value: Recent changes allow more liability to be recorded at FMV (IFRS & GAAP require disclosure of FMV) - Downward adj. in liability will Increase equity and decrease leverage ratio - Upward adj in liability will decrease
CFO - Direct method
Types of accounting changes: prior period adjustments
B/S - short-term investments
Analysis: Market Value of Debt
34. Profit is recognized only when it exceeds estimated total cost.
Extraordinary Items: Unusual AND Infrequent items...
3 C's for Credit Analysis...
Cost recovery method...
Segment Reporting
35. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
IASB
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Inv. Valuation reporting Inventory ABOVE costs...
Funded Status US GAAP & IFRS
36. 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.
Revaluation above historic cost...
days of sales o/s =
Fraud Triangle - 1) Incentive/Pressure
Fraud Triangle - 2) Opportunity
37. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
IFRS Revenue Recognition For Service
IFRS/US GAAP Frameworks: purpose of framework
Impact on the B/S of a Zero Coupon Bond...
Financial Ratios based on B/S: Solvency (Coverage)
38. 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
Intercorporate Investment: > 50% votes...
Barriers to a single framework...
IOSCO
39. [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
days of sales o/s =
Statement of Cash Flow - relevance...
Diluted EPS
Form DEF-14A...
40. 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
Screening for Potential Equity Investment: Criteria
Double-decline balance (DDB)
Tax base on a liability
Effects of Lease Classification on Ratios - Finance Lease
41. Slow moving or obsolete inventory
Inventory mangement: Low T/O (High DOH)...
Capitalized Intangibles...
Activity Based Restrictions
B/S - Long-lived assets PP&E
42. 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
B/S - Long-lived assets PP&E
B/S - short-term investments
Intangibles under IFRS...
IFRS/US GAAP Frameworks: Measurement of Elements...
43. You.S. GAAP
Net Periodic Benefit Costs
Diluted EPS
Motivation to Understate Assets/Overstate Liabilities
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
44. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Creative Cash Flows Accounting: Technique
Trade-Offs Qualitative Characteristics of IFRS
Dilutive Securities
Analysis: Market Value of Debt
45. Small investment for div/capital gains purpose - If Secondary market: Held-to-maturity: Debt securities co intend to hold to maturity; Carried at Amortized cost. Available-for-sale: Sold to satisfy Debt/Equity Needs; Currrent or non-current; B/S @ MV
Intercorporate Investment: < 20% votes...
Simple capital structure
Reasons to Lease...
Bond Issuance Cost under GAAP/IFRS
46. Capital structure that contains NO potentially dillutive securities - (contains only c/s - nonconvertible debt - and nonconvertible pref. stock)
What is the economic substance of financial (capital) lease?
Inventory Systems...
# of days payable =
Simple capital structure
47. 1) Revenue (external & internal) 2) Segment results (operating profit) 3) Carrying amount of segment asset4 4) Segment liabilities (IFRS) 5) Cost of PPE and intangibles acquired 6) Depreciation and Amort expenses 7) Other non-cash expense 8) Share of
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Deferred Tax Liability: (DTL)
Disclosure for each segment...
48. Low: P/E - P/CF - or P/S - High: ROE - ROA - growth rates of sales and earnings - Low: leverage
Extended DuPont Equation...
Traditional DuPont Equation...
Screening for Potential Equity Investment: Criteria
Barriers to a single framework...
49. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method
B/S - Long-lived assets
Creative Cash Flows Accounting: Technique
Return on total capital (ROTC)...
Intercorporate Investment: 20% - 50% votes...
50. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
IFRS/US GAAP Frameworks: underlying assumptions...
Financial Assets: US GAAP/Amortized at Cost
Intangible Assets
Vertical Common Size Statements...