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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
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. 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
Extraordinary Items: Unusual AND Infrequent items...
LIFO is appropriate
IFRS/US GAAP Frameworks: purpose of framework
Measurement of A & L disclosure in footnotes
2. 1) Incentive/Pressure (the motive to commit fraud) 2) Opportunity (exists with weak internal controls) 3) Attitude/rationalization (mindset that fraud is justified)
DTA Issues
Expensed Intangibles...
Analyzing Effective Tax Rate Reconciliation
Fraud Triangle
3. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
Units of Production Method
Depreciation Methods...
Valuation allowance
Inv. Valuation reporting Inventory ABOVE costs...
4. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability
Impact on the B/S of a Premium Bond...
BASIC EPS
Taxation Analyst Adjustments...
Comprehensive income...
5. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)
Types of accounting changes: accounting estimate
IFRS/US GAAP Frameworks: Measurement of Elements...
Analyzing Effective Tax Rate Reconciliation
Taxable Income
6. Tax liability based on taxable income as per TAX Report/RETURN
Financial Ration based on B/S: Liquidity Ratios
Roles of financial reporting & analysis include...
Taxation: Tax Payable
Fraud Triangle
7. A: Increase = use cash (-) - Decrease = source cash (+) - L: Increase = source cash (+) - Decrease = use of cash (-) - E: Increase = source cash (+) - Decrease = use of cash (-)
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Valuation Allowance...
IOSCO
Cash Flow: Logic (A = L + E)
8. 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
An Increase in the Valuation Allowance Account...
Financial Ratios based on B/S: Solvency ratio
Form 144...
Analysis: Market Value of Debt
9. Management turnover.
Income Tax Paid...
FASB - Harmonization
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
To investigate the stability of that structure - Kilgore would be best served by looking at...
10. 1) Diff tax rate in diff. tax jurisdictions (countries) (continuous)2) Permanent tax differences: tax credit - tax-exempt income - nondeductible expenses - & tax diff between capital gains and operating income. (continuous) 3)in tax rates and legisl
IFRS/US GAAP Frameworks: objective of F/S
Expensed Intangibles...
Analyzing Effective Tax Rate Reconciliation
The best indicator of overstating its profits is...
11. 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
Capitalization of Interest...
FIFO ending inventory =
Return on total capital (ROTC)...
Traditional DuPont Equation...
12. 1) Purchase cost; 2) conversion costs; 3) Allocation of fixed production OH based on normal capacity levels; 4) Other costs necessary to bring the inventory to its present location and condition (freight costs & installation) - Exclude: Admin OH - S
Tax Loss Carryforward...
Antidilutive Securities
Cost included in Inventory on b/s...
The 4 Qualitative Characteristics of IFRS
13. 1) Relevance vs. reliability; 2) Benefit > cost; 3) Excludes intangibles and non-quantifiable info.
Inventory Valuatoin (LCM)
Characteristics of an effective framework
Trade-Offs Qualitative Characteristics of IFRS
CFI Analysis...
14. 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
MD&A contains...
Footnote Finance Liability Disclosure
Revaluation below historic cost...
Effects of Lease Classification on F/S - Finance Lease
15. '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
% of Completion
Cash Flow From Investing (USA) (Assets)
Unusual OR Infrequent items...
Potentially Dillutive Securities
16. Required by IFRS - Permited by US GAAP
Return on Equity (ROE)...
Component depreciation;
Horizontal Common Size Statements...
Cash Flow From Financing (USA) (Source of Cash)
17. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
FASB
An Increase in the Valuation Allowance Account...
Operating vs. Non-operating Income
Inventory Valuatoin (LCM)
18. Return on Total Equity = NI/ Avg. Total Equity - Return on C/E = NI - Pref. Div/ Avg. Common Equity
Antidilutive Securities
IFRS/US GAAP Frameworks: Recognition of Elements...
FASB - Harmonization
Return on Equity (ROE)...
19. 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
B/S - Long-term Liabilities
MD&A contains...
LIFO results in: (assuming inflationary period)
3 C's for Credit Analysis...
20. 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
Intercorporate Investment: > 50% votes...
Credit Rating Process...
Trade-Offs Qualitative Characteristics of IFRS
Under Completed Contract Method...
21. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption
Calculate dividends declared...
Impairments recognition (IFRS)
Screening for Potential Equity Investment: Criteria
Impact on the Cash Flow of a Par Bond...
22. Interest expense = Coupon rate
Asset Revaluation: IFRS
LIFO is appropriate
Measurement of A & L disclosure in footnotes
Impact on the B/S of a Par Bond...
23. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Financial Ratios based on B/S: Solvency (Coverage)
IFRS/US GAAP Frameworks: F/S elements...
Inv. Valuation reporting Inventory ABOVE costs...
Cash Flow From Financing (USA) (Source of Cash)
24. Inflow - (bringing bond UP to par)
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
The 4 Qualitative Characteristics of IFRS
Measurement of A & L disclosure in footnotes
Operating vs. Non-operating Income
25. Interest Expense = Amortization
Impact on the B/S of a Zero Coupon Bond...
CFO Disclosure requirement...
4 General Categories for Creditworthiness/Capacity...
Finance (capital) Lease criteria (under US GAAP)
26. Ineffective corp. ethical values; non-financial managers invovled in selection of accounting principles/estimates; History of violation; Focus on stock price and earning trends; Commitment to unrealistic/aggressive forecasts; Failure to correct known
Effects of Lease Classification on Ratios - Finance Lease
Cash Flow From Investing (USA) (Assets)
Fraud Triangle - 3) Attitude/rationalization
Cost recovery method...
27. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
Financial Implications of Capitalizing...
Types of accounting changes: accounting principle
IFRS Revenue Recognition
Intercorporate Investment: > 50% votes...
28. Unlisted instruments - Held-to-maturity investments - Loans - Receivables
Financial Assets: US GAAP/Amortized at Cost
Horizontal Common Size Statements...
Capitalization of Interest...
Financial Lease Reporting
29. Beginning Inv. (BI) + Purchases (P) = Available for Sale - Available for sale - COGS = Ending Inventory (EI)
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
SEC guidance for Revenue Recognition
Ending Inventory =
Free Cash Flow to Equity - FCFE
30. Potentially dilutive securitites [options - warrants - convertible securities]
Complex Capital Structure
Financial Assets: US GAAP/Fair Market Value
Steps of F/S Analysis
Effects of Lease Classification on Ratios - Finance Lease
31. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.
B/S - investments
Inventory Cost Flow Methods...
4 General Categories for Creditworthiness/Capacity...
IFRS/US GAAP Frameworks: underlying assumptions...
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
Asset Capitalization
Diluted EPS
From creditor POV: Int. Coverage;
Steps of F/S Analysis
33. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher
Impact on the Cash Flow of a Premium Bond...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Tax base of an asset
LIFO is appropriate
34. 1) Firms adds a lease asset and a lease liability to b/s = amounts - 2) Recognize int. expense on liability and depreciation exp on asset - Since Int. exp + depre > lease pymt in the early years. This decreases NI - and Profitability ratios.
Component depreciation;
Financial Lease Reporting
3 C's for Credit Analysis...
Low Quality Earnings is result of...
35. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
Vertical Common Size Statements...
FIFO after-tax profit =
Types of accounting changes: prior period adjustments
Sales Basis Revenue Recognitions
36. EU 1) Int'l Accounting Standards Board; 2) Unified int'l frameworks of accounting standards (IFRS); 3) Addopted by EU in 2005
FIFO results in: (assuming inflationary period)
Under Completed Contract Method...
Valuation Allowance...
IASB
37. 1) Balance Sheet; 2) Comprehensive Income; 3) Change in Equity; 4) Cash Flow Statement; 5) Accounting policies and notes.
IFRS: Required F/S
Add/ Sub changes to related b/s operating accounts
Valuation Allowance...
Impact on the Cash Flow of a Discount Bond...
38. Securities that would INCREASE EPS if exercised
Finance (capital) Lease criteria GAAP vs. IFRS
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Antidilutive Securities
Stock options: Use treasury stock method
39. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
Asset Revaluation: IFRS
Effects of Lease Classification on Ratios - Finance Lease
CFO Analysis...
FASB
40. 1) understandability; 2) relevance; 3) reliability; and 4)comparability - No hierarchy
Free Cash Flow to the Firm - FCFF
Motivation to Over-report Earnings
Asset Revaluation: IFRS
The 4 Qualitative Characteristics of IFRS
41. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Financial Lease Reporting
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Intangibles under IFRS...
Taxable Income
42. 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
An Increase in the Valuation Allowance Account...
CFI Analysis...
Funded Status US GAAP & IFRS
Installment Method...
43. BV - cash paid = gain/(loss) + any unamortized issue costs (US only) = Gain/Loss on repurchase [I/S as continuing operations)
Gain/(loss) on bond early retirement: (derecognition of debt)
Revaluation below historic cost...
Sarbanes-Oxley Management Report...
Revaluation above historic cost...
44. Inventory TO = COGS / Avg. Inventory - LIFO = Higher - FIFO = Lower - DOH = 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.) - LIFO = lower days - FIFO = higher days - Gross Profit margin = Gross profit/ revenues - LIFO = lower - FIFO = higher
Ratios that directly affect choice of Inventory Account...
Impact on the Cash Flow of a Zero Coupon Bond...
FASB - Harmonization
Convergence IFRS/US GAAP...
45. 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
Form 8-K...
% of Completion
Effects of Lease Classification on F/S - Operating Lease
Extended DuPont Equation...
46. If PV of min lease pymt = cost of asset 1) lessor is not a dealer of leased equipment (fin. co.)2) no gross profit is recognized at time of lease inception 3) all profit is int. revenue recognized over period of lease. CFO = Int. Income inflow - CFI
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
IFRS/US GAAP Frameworks: objective of F/S
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Discontinued Operations...
47. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
Cash Flow From Operations (CFO) - FASB
Effects of Lease Classification on F/S - Finance Lease
Income Tax Paid...
Defined Benefit Plans
48. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Lessor Accounting Capital Lease: Sales-Type Lease
Low Quality Earnings is result of...
Measures of Operating Performance - Efficiency Ratios...
B/S - Long-lived assets
49. Assess liquidity - solvency and financial flexibiliy
Types of accounting changes...
Intangibles under IFRS...
Motivation to Under-report Earnings
Statement of Cash Flow - relevance...
50. Is required under IFRS but not under GAAP
Footnote Finance Liability Disclosure
Cash Flow: Logic (A = L + E)
# of days payable =
Footnote disclosure of Reconciliation of opening and closing carrying values...