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. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.
Common Size Statement
Cash Conversion Cycle =
IFRS/US GAAP Frameworks: underlying assumptions...
Antidilutive Securities
2. Pd after more than 1 year - notes & bonds: at PV of future CF pymets - Capital leases - Provisions - Deferred tax
Deferred Tax Liability: (DTL)
B/S - Long-term Liabilities
Balance Sheet
Financial Lease Reporting
3. Management turnover.
Creative Cash Flows Accounting: Technique
DTA/DTL: Effect on Net Income when Tax Rate decreases...
To investigate the stability of that structure - Kilgore would be best served by looking at...
FIFO results in: (assuming inflationary period)
4. 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
Double-decline balance (DDB)
Comprehensive income...
Fraud Triangle - 1) Incentive/Pressure
LIFO is appropriate
5. Return on Total Equity = NI/ Avg. Total Equity - Return on C/E = NI - Pref. Div/ Avg. Common Equity
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Return on Equity (ROE)...
Fraud Triangle - 2) Opportunity
CFO - Indirect method steps...
6. 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.
Asset Revaluation: IFRS
# of days payable =
Measures of Operating Performance - Efficiency Ratios...
Form DEF-14A...
7. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate
Form 8-K...
Motivation to Understate Assets/Overstate Liabilities
% of Completion
Sources of Differences: Permanent
8. 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)
Ending Inventory =
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
CFO - Direct/Indirect method
IOSCO
9. Shows the performance of the company over a reporting period.
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Income Statement
10. IFRS Allows firm to report PP&E at FMV less Accm' Depr' - Must disclose carrying vlaue using historic cost model.
Asset Revaluation: IFRS
Forecasting Financial Performance: Application
Measurement of A & L disclosure in footnotes
From creditor POV: Int. Coverage;
11. 1) Development of high quality - transparent and enforceable global standards; 2) Promote application of standards; 3) Take into account special needs (small & med entities & emerging markets); 4) Convergence of nat'l and int'l standards
Taxation Disclosure Requirements
IASB - Goals
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Types of accounting changes: accounting estimate
12. 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
Forecasting Financial Performance: Top Down Approach...
Fraud Triangle - 3) Attitude/rationalization
IFRS: Required F/S
Sources of Differences: Temporary
13. Profit is recognized only when it exceeds estimated total cost.
Cost recovery method...
Impact on the Cash Flow of a Discount Bond...
Impairments recognition (GAAP)
Gross Reporting of Revenue
14. Efficient inventory managment
Impact on the Cash Flow of a Par Bond...
4 General Categories for Creditworthiness/Capacity...
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Sources of Differences betweent F/S & T/
15. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability
Taxation Analyst Adjustments...
Finance (capital) Lease criteria (under US GAAP)
Motivation to Overstate Assets/Understate Liabilities
Impact on the Cash Flow of a Zero Coupon Bond...
16. (GAAP) Internally created intangibles 1) (R&D) are expensed 2) Advertising 3) Software (developed to establish feasibility)
Return on total capital (ROTC)...
B/S - Stockholders' Equity
Expensed Intangibles...
Cash flow ratios
17. 1) when differences are expected to REVERSE and reslut in future tax payment - treate DTL as a LIABILITY in calculating leverage ratios 2) when differences are NOT expected to REVERSE and result in future tax payment - treat DTL as EQUITY in calculat
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
DTA Issues
Financial Ratio based on I/S...
Analyst Treaments of DTL
18. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default
Return on total capital (ROTC)...
Debt covenants
Sources of Differences betweent F/S & T/
Asset Revaluation: IFRS
19. NI/Avg. Total Assets - NI + Int (1-t) / Avg. Total Assets - Operating ROA: Operating INc/ Avg. Total Assets
Gross Reporting of Revenue
B/S - investments
Return on Assets ROA...
Roles of financial reporting & analysis include...
20. Trade relief - Contingent consideration - Union concessions
Asset Revaluation: IFRS
Deferred Tax Liability: (DTL)
Motivation to Under-report Earnings
days of inv. on hand =
21. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Financial Assets: US GAAP/Amortized at Cost
Double-decline balance (DDB)
Financial Liability: US GAAP/Fair Market Value
An Increase in the Valuation Allowance Account...
22. US 1) Financial Accounting Standards Board; 2) Standards form GAAP; 3) Aims - useful - relevant - reliable - consistent and comparable; 4) SEC deems FASB standard authoritative
The best indicator of overstating its profits is...
FASB
Impact on the Cash Flow of a Discount Bond...
Cash Flow From Operations (CFO) - IFRS
23. 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 Financing (USA) (Source of Cash)
Tax base of an asset
Analyst Treaments of DTL
Footnote Finance Liability Disclosure
24. 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...
Segment Reporting
The 4 Qualitative Characteristics of FASB...
Cost recovery method...
25. 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
Creative Cash Flows Accounting: Motivation
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Fraud Triangle - 2) Opportunity
Analyst Treaments of DTL
26. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is higher and CFF is lower
Impact on the Cash Flow of a Discount Bond...
Analysis: Market Value of Debt
IFRS: Presentation Requirements
B/S - short-term investments
27. 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)
Balance Sheet
Sales Basis Revenue Recognitions
Tax Loss Carryforward...
Balance Sheet - formats
28. 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
Vertical Common Size Statements...
IFRS/US GAAP Frameworks: purpose of framework
Deferred Tax Liability: (DTL)
Cash Conversion Cycle =
29. '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
Cash Flow From Investing (USA) (Assets)
Financial Implications of Capitalizing...
Net Realizable Value (NRV) (IFRS)
Cash Flow From Operations (CFO) - FASB
30. Lost sales from stock outs
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Diluted EPS
Horizontal Common Size Statements...
Finance (capital) Lease criteria (under US GAAP)
31. 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.
LIFO results in: (assuming inflationary period)
Finance (capital) Lease criteria (under US GAAP)
Deferred Tax Asset: (DTA)
Fraud Triangle - 1) Incentive/Pressure
32. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same
Return on Assets ROA...
Effects of Lease Classification on F/S - Operating Lease
Auditor/Audit Opinion
FASB - Harmonization
33. 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
Impairments recognition (IFRS)
Asset Revaluation: IFRS
Taxation: Income Tax Expense
Implication for Analysts: Be aware of differences in tax reconcilation between periods
34. Aggressive Revenue Recognition - Diff. growth rates of operating cash flow and earnings - Abnormal comparative sales growth - Abnormal inventory growth as compared to sales - Moving nonoperating income and nonrecurring gains up to I/S to boost revenu
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Sustainable Growth
From creditor POV: Int. Coverage;
Warning Signs of Earnings Manipulation
35. Employer promises specific payment stream at retirement - Payments are based on yrs of service - retirement age - and final salary - Employers bears investment risk - Funded by pool of assets - Complicated accounting
Defined Benefit Plans
Impact on the B/S of a Discount Bond...
B/S - investments
Taxation Analyst Adjustments...
36. 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:
B/S - Long-term Liabilities
FASB - Harmonization
Impairments recognition (IFRS)
CFO - Indirect method steps...
37. Same as other ratios using NI in this case substitut NI for CFO.
Dilutive Securities
Screening for Potential Equity Investment: Criteria
Financial Assets: US GAAP/Fair Market Value
Cash flow ratios
38. 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
Common Size Statement
IFRS: Presentation Requirements
Analyst Treaments of DTL
Intangibles under IFRS...
39. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Straight-line depreciation (SL)
CFO Analysis...
Under Completed Contract Method...
Defined Contribution Plans
40. 1) Valuation; 2) Standard setting; 3) Measurement
Barriers to a single framework...
Motivation to Understate Assets/Overstate Liabilities
% of Completion
Financial Ratio based on I/S...
41. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
Deferred Tax Liability: (DTL)
Motivation to Under-report Earnings
Simple capital structure
CFO - Direct/Indirect method
42. 1) held-to-maturity: @ amortized cost (i.e Bonds) 2) trading: @ fair value through P&L @ fair mkt value - unrealized g/(l) are recognized on the I/S. 3) available-for-sale: @ fair mkt value - unrealized g/(l) are NOT recognized on the I/S - instead r
B/S - Long-lived assets
B/S - short-term investments
Inventory mangement: Low T/O (High DOH)...
Lessor Accounting Capital Lease: Sales-Type Lease
43. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
Market Value (GAAP)...
Simple capital structure
IFRS/US GAAP Frameworks: Recognition of Elements...
Tax base of an asset
44. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
Analyst Treaments of DTL
CFI Analysis...
Cash Flow From Operations (CFO) - FASB
Motivation to Overstate Assets/Understate Liabilities
45. LT D-to-E = Total LT Debt / Total Equity - D-to-E = Total Debt / Total Equity - Financial leverage ratio = Total Assets/Total Equity - Total Debt Ratio = Total Debt / Total Asset - Debt-to-Capital = Total Debt/ Total Debt + SOE - All Solvency are ove
Revaluation above historic cost...
Financial Ratios based on B/S: Solvency ratio
Sustainable Growth
Free Cash Flow to the Firm - FCFF
46. 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
Types of accounting changes: prior period adjustments
Convergence IFRS/US GAAP...
Operating vs. Non-operating Income
47. Shares are to take over control - Subsidiary - Consolidate financials
Intercorporate Investment: > 50% votes...
DBO Funded Status =
% of Completion
Implication for Analysts: Be aware of differences in tax reconcilation between periods
48. Exchange of goods or services between two parties (no cash) IASB: Revenue = FMV of similar non-barter transaction with unrelated parties FASB: Revenue = FMV only if the company has received cash payments for such services in the past
Cash Flow From Operations (CFO) - IFRS
Barter (IASB & FASB)
Inventory Systems...
Depreciation Methods...
49. For inventory that has a limited shelf life ex) Because the movies have a very limited shelf life and will greatly deteriorate in value with age - especially after the first year - FIFO is the most appropriate method of accounting for the movies for
Creative Cash Flows Accounting: Technique
Asset Revaluation: IFRS
FIFO is appropriate
Free Cash Flow -CFO
50. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality
Valuation Allowance...
Stock options: Use treasury stock method
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Cash Flow From Operations (CFO) - IFRS