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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. Reported BELOW the line. Operations mgmt has decided to dispose of but: 1) has not yet done so or 2) did so in CY after it generated profit/(loss) Must be physicallly and operationally distinct from firm. Analyst must determine effects on future inco
Discontinued Operations...
Intercorporate Investment: < 20% votes...
Cash Flow: Logic (A = L + E)
The 4 Qualitative Characteristics of FASB...
2. FIFO: EI = newest purchases - LIFO: EI = oldest purchases - Avg. Costs: EI = Available for sale/Units - Specific ID: high value items (cars - diamonds etc)
LIFO results in: (assuming inflationary period)
Sources of Differences betweent F/S & T/
Inventory Cost Flow Methods...
The account format of B/S
3. Profit is recognized only when it exceeds estimated total cost.
Taxation: Tax Payable
Cost recovery method...
Net Realizable Value (NRV) (IFRS)
Effects of Lease Classification on F/S - Operating Lease
4. 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
Disclosure for each segment...
FASB
Taxation: Tax Payable
Income Statement
5. +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
Sources of Differences betweent F/S & T/
Cash Flow From Operations (CFO) - FASB
Bond Issuance Cost under GAAP/IFRS
Taxation Disclosure Requirements
6. 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.
Warning Signs of Earnings Manipulation
Fraud Triangle - 2) Opportunity
3 C's for Credit Analysis...
Valuation allowance
7. 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.
B/S - short-term investments
IFRS: Presentation Requirements
Impact on the B/S of a Discount Bond...
Analyst Treaments of DTL
8. 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:
Impact on the Cash Flow of a Par Bond...
Statement of Cash Flow - relevance...
CFO - Indirect method steps...
Capitalization of Interest...
9. Asset is impaired if carrying value > recoverable amount - One-step process 1) Compare carrying value to: recoverable amount = the greater of the two. a) Fair value - selling costs b) Value in use = (PV of future cash flow from cont. use) - Loss reve
Income Tax Paid...
Impairments recognition (IFRS)
Capitalized Intangibles...
Inventory Valuatoin (LCM)
10. Is required under IFRS but not under GAAP
Footnote disclosure of Reconciliation of opening and closing carrying values...
Financial Implications of Capitalizing...
4 General Categories for Creditworthiness/Capacity...
Funded Status US GAAP & IFRS
11. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability
IFRS/US GAAP Frameworks: Recognition of Elements...
Free Cash Flow to Equity - FCFE
Cost recovery method...
Taxation Analyst Adjustments...
12. Divdends and share repurchases - Production and investment - M&A - New debt issuance - Payoff pattern and liquidation priority - Maintenance of assets used as collateral
Effective Tax Rate
Activity Based Restrictions
Bond Issuance Cost under GAAP/IFRS
Cash Flow From Operations (CFO) - IFRS
13. 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.
Discontinued Operations...
CFI Analysis...
Impact on the Cash Flow of a Premium Bond...
Operating Lease
14. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate
Sources of Differences: Permanent
Sustainable Growth
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
B/S - Long-lived assets PP&E
15. Securities that would INCREASE EPS if exercised
Effects of Lease Classification on F/S - Operating Lease
Inventory mangement: Low T/O (High DOH)...
Antidilutive Securities
Double-decline balance (DDB)
16. 365/(AP T/O) = 365/(purchases/ Avg. AP)
# of days payable =
To investigate the stability of that structure - Kilgore would be best served by looking at...
Footnote disclosure of Reconciliation of opening and closing carrying values...
Effects of Lease Classification on F/S - Finance Lease
17. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Financial Ratios based on B/S: Solvency (Coverage)
Free Cash Flow to the Firm - FCFF
Financial Ratio based on I/S...
Impact on the Cash Flow of a Zero Coupon Bond...
18. Low: P/E - P/CF - or P/S - High: ROE - ROA - growth rates of sales and earnings - Low: leverage
Financial Assets: US GAAP/Amortized at Cost
Financial Ratios based on B/S: Solvency (Coverage)
Ratios that directly affect choice of Inventory Account...
Screening for Potential Equity Investment: Criteria
19. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
FIFO results in: (assuming inflationary period)
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Intangible Assets
Stock options: Use treasury stock method
20. Assess liquidity - solvency and financial flexibiliy
SEC guidance for Revenue Recognition
Net Realizable Value (NRV) (IFRS)
Statement of Cash Flow - relevance...
Revaluation above historic cost...
21. Working Capital = CA - CL - Working Capital TO = Rev/Avg. Working Capital - Fixed Asset TO = Rev/Avg Net Fixed Assets
LIFO results in: (assuming inflationary period)
Activity Ratios
DTA Issues
B/S - short-term investments
22. 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
Cash Flow From Operations (CFO) - FASB
Effects of Lease Classification on F/S - Finance Lease
Auditor/Audit Opinion
Calculate dividends declared...
23. 1) Account format (A on left and L & E on right) 2) Report format ( A - L - E presented in one column) 3) Classified B/S (ordered)
Balance Sheet - formats
Valuation Allowance...
Analysis: Market Value of Debt
Gain/(loss) on bond early retirement: (derecognition of debt)
24. Management turnover.
Diluted EPS
To investigate the stability of that structure - Kilgore would be best served by looking at...
Free Cash Flow to Equity - FCFE
Inventory mangement: High T/O (low DOH) and sales growth above industry average
25. 2 step-process 1) Recoverability: carrying value > undiscounted CF from asset's use and disposal 2) Loss measurement: Loss is the excess of carrying value over the asset's fair market value or PV of cash flows - Loss reversal for held-for-use assets
Financial Ratio based on I/S...
Motivation to Over-report Earnings
Impairments recognition (GAAP)
The best indicator of overstating its profits is...
26. 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.
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Financial Lease Reporting
Forecasting Financial Performance: Top Down Approach...
Deferred Tax Liability: (DTL)
27. CV of Op. Inc = std dev. EBIT/ Mean EBIT - CV of Revenue: std. dev Rev/ mean Rev. - Operating Leverage = %chg in EBIT/ %chg in Sales
Operating Risk Ratios...
Balance Sheet - formats
Deferred Tax Asset: (DTA)
Intangible Assets
28. + Service Costs (recurring costs (actual)) - + Interest Costs (recurring costs (actual)) - - Expected return on plan assets (smoothed event) - +/- Amort of (gains) and losses (smoothed event) - +/- Amort of prior service costs* (smoothed event) - +/-
Net Periodic Benefit Costs
Intangible Assets
Form 144...
Sarbanes-Oxley Management Report...
29. EBIT/ *Gross Interest EBITDA/ *Gross Interest *(inc'd capitalized interest) - How many times is EBIT or EBITDA bigger than gross interest? Higher ratio is desired. Shows ability to cover int. payment
Fraud Triangle - 1) Incentive/Pressure
From creditor POV: Int. Coverage;
B/S - Long-lived assets
Cost included in Inventory on b/s...
30. 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 =
Calculate dividends declared...
Sources of Differences: Temporary
Financial Adj to Facilitate Comparison...
Motivation to Understate Assets/Overstate Liabilities
31. 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
Footnote Finance Liability Disclosure
FIFO results in: (assuming inflationary period)
Forecasting Financial Performance: Top Down Approach...
Revaluation below historic cost...
32. Income subject to tax as per Tax Return
IASB - Goals
Measures of Operating Performance - Efficiency Ratios...
Taxable Income
Taxation: Income Tax Expense
33. 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
Credit Analysis: Ratios
Financial Ratios based on B/S: Solvency (Coverage)
CFO - Indirect method steps...
IFRS/US GAAP Frameworks: purpose of framework
34. Any I/S subtotal is expressed a margin ratio (to revenues) - Gross profit margin = gross profit/ revenue - Net profit margin = Net Inc/revenue - Operating profit margin = EBIT/ revenue - Pre-tax margin = EBT/ revenue
Financial Ratio based on I/S...
Financial Ratios based on B/S: Solvency ratio
Antidilutive Securities
Sales Basis Revenue Recognitions
35. Assets - liabilities - and equity are presented in a single column.
The report format of B/S
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
The 4 Qualitative Characteristics of FASB...
Cash Flow From Operations (CFO) - FASB
36. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower
Horizontal Common Size Statements...
CFO - Direct/Indirect method
FIFO results in: (assuming inflationary period)
Net Realizable Value (NRV) (IFRS)
37. Replacement cost subject to: Upper limit = NRV - Loewr limit = NRV - normal profit margin
Taxation Analyst Adjustments...
Defined Benefit Plans
Market Value (GAAP)...
Stock options: Use treasury stock method
38. NRV = Est. selling cost - Est. cost of complition - selling costs
Financial Ratios based on B/S: Solvency (Coverage)
Roles of financial reporting & analysis include...
Tax Loss Carryforward...
Net Realizable Value (NRV) (IFRS)
39. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
Cash Flow From Operations (CFO) - IFRS
Analyst Treaments of DTL
The 4 Qualitative Characteristics of FASB...
Form DEF-14A...
40. 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
Sales Basis Revenue Recognitions
Financial Ratio based on I/S...
Income Tax Paid...
Funded Status US GAAP & IFRS
41. Potentially dilutive securitites [options - warrants - convertible securities]
Complex Capital Structure
Cash Flow From Operations (CFO) - IFRS
Inv. Valuation reporting Inventory ABOVE costs...
Capitalized Intangibles...
42. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same
Financial Liability: US GAAP/Amortized at Cost
Cash Flow From Financing (USA) (Source of Cash)
Effects of Lease Classification on F/S - Operating Lease
Stock options: Use treasury stock method
43. 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
Balance Sheet
Impact on the B/S of a Premium Bond...
Installment Method...
Common Size Statement
44. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
Impairments recognition (GAAP)
The account format of B/S
Financial Ratios based on B/S: Solvency (Coverage)
Form 144...
45. 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...
Analyst Treaments of DTL
SEC guidance for Revenue Recognition
Funded Status US GAAP & IFRS
46. 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...
Intangible Assets
Taxable Income
47. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments
The account format of B/S
Types of accounting changes...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Inventory mangement: Low T/O (High DOH)...
48. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Impact on the Cash Flow of a Discount Bond...
Operating Risk Ratios...
LIFO is appropriate
Operating vs. Non-operating Income
49. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
Return on Equity (ROE)...
% of Completion
The best indicator of overstating its profits is...
An Increase in the Valuation Allowance Account...
50. Unlisted instruments - Held-to-maturity investments - Loans - Receivables
IFRS/US GAAP Frameworks: Measurement of Elements...
Financial Assets: US GAAP/Amortized at Cost
Balance Sheet - formats
days of inv. on hand =