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. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
Deferred Tax Asset: (DTA)
IOSCO
Effects of Lease Classification on Ratios - Finance Lease
Impact on the B/S of a Premium Bond...
2. 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
% of Completion
Impairments recognition (GAAP)
Roles of financial reporting & analysis include...
Simple capital structure
3. 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)
Impact on the B/S of a Zero Coupon Bond...
Financial Adj to Facilitate Comparison...
SEC guidance for Revenue Recognition
Add/ Sub changes to related b/s operating accounts
4. 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
IFRS Revenue Recognition For Service
Inventory Systems...
Sustainable Growth
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
5. 1st: Net Income - dividends declared = chg in are/E - Then: Dividends declared +/- chg dividends payable = cash dividends paid.
Income Tax Paid...
Calculate dividends declared...
DBO Funded Status =
B/S - Stockholders' Equity
6. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method
Extended DuPont Equation...
Intercorporate Investment: 20% - 50% votes...
IFRS: Presentation Requirements
FIFO results in: (assuming inflationary period)
7. Current ratio = CA/CL - Quick/Acid test = (cash + mkt sec + AR)/CL - Cash ratio = (Cash + mkt sec)/ CL - Defensive interval = (cash + mkt sec + AR)/Daily Cash Exp - Liquidity is over current Liabilities
Cash Flow From Investing (USA) (Assets)
days of inv. on hand =
Credit Analysis: Ratios
Financial Ration based on B/S: Liquidity Ratios
8. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower
LIFO is appropriate
FIFO results in: (assuming inflationary period)
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
CFO Disclosure requirement...
9. Potentially dilutive securitites [options - warrants - convertible securities]
Net Reporting of Revenue
Complex Capital Structure
Activity Ratios
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
10. Reported ABOVE the line 1) G/(L) from disposal of a business segment 2) G/(L) from sale of investment in subsidiary 3) Provisions for environmental remediation - impairments - write-offs - write-downs - restructuring.4) Integration expense for recent
Barriers to a single framework...
Unusual OR Infrequent items...
Creative Cash Flows Accounting: Technique
Fraud Triangle - 3) Attitude/rationalization
11. All DTA and DTL are classified as noncurrent under IFRS - Under U.S. GAAP - deferred tax assets and liabilities are classified as current or non-current according to the classification of the underlying asset or liability. Under IFRS - deferred tax a
DTA/DTL: Effect on Net Income when Tax Rate decreases...
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Auditor/Audit Opinion
12. Management turnover.
Complex Capital Structure
Inventory mangement: High T/O (low DOH) and sales growth below industry average
To investigate the stability of that structure - Kilgore would be best served by looking at...
FIFO results in: (assuming inflationary period)
13. 1) Scale & Diversification - 2) Operational Efficiency - 3) Margin Stability - 4) Leverage
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Depreciation Methods...
Measures of Operating Performance - Efficiency Ratios...
4 General Categories for Creditworthiness/Capacity...
14. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
Double-decline balance (DDB)
Deferred Tax Liability: (DTL)
Tax Loss Carryforward...
IFRS/US GAAP Frameworks: Recognition of Elements...
15. 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
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Statement of Cash Flow - relevance...
Asset Capitalization
Sources of Differences: Permanent
16. 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
Taxable Income
Income Statement
Market Value (GAAP)...
Analyst Treaments of DTL
17. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable
IFRS/US GAAP Frameworks: Recognition of Elements...
IFRS Revenue Recognition
Footnote Finance Liability Disclosure
B/S - Long-lived assets
18. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
Footnote Finance Liability Disclosure
Valuation allowance
FASB - Harmonization
Cash Flow From Financing (USA) (Source of Cash)
19. 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 -
The best indicator of overstating its profits is...
DBO Funded Status =
Balance Sheet
What is the economic substance of financial (capital) lease?
20. 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
Operating Risk Ratios...
Types of accounting changes: accounting principle
IFRS/US GAAP Frameworks: objective of F/S
21. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.
Impact on the Cash Flow of a Premium Bond...
Gross Reporting of Revenue
% of Completion
IFRS/US GAAP Frameworks: F/S elements...
22. 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 - short-term investments
Traditional DuPont Equation...
The 4 Qualitative Characteristics of IFRS
FIFO is appropriate
23. Outflow - (bringing bond DOWN to par)
FIFO ending inventory =
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
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
24. 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)
DTA Issues
Financial Assets: US GAAP/Amortized at Cost
Tax Loss Carryforward...
Types of accounting changes: accounting estimate
25. Divdends and share repurchases - Production and investment - M&A - New debt issuance - Payoff pattern and liquidation priority - Maintenance of assets used as collateral
Activity Based Restrictions
Forecasting Financial Performance: Top Down Approach...
Credit Analysis: Ratios
Add/ Sub changes to related b/s operating accounts
26. 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)
Creative Cash Flows Accounting: Technique
CFO - Direct/Indirect method
Types of accounting changes: accounting principle
Stock options: Use treasury stock method
27. 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)
Cash Flow From Investing (USA) (Assets)
Finance (capital) Lease criteria (under US GAAP)
Extended DuPont Equation...
LIFO results in: (assuming inflationary period)
28. Required by IFRS - Permited by US GAAP
Intercorporate Investment: 20% - 50% votes...
Component depreciation;
Net Realizable Value (NRV) (IFRS)
B/S - investments
29. Capital structure that contains NO potentially dillutive securities - (contains only c/s - nonconvertible debt - and nonconvertible pref. stock)
Income Tax Paid...
Return on Equity (ROE)...
Simple capital structure
CFI Analysis...
30. 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
Operating Risk Ratios...
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Impact on the Cash Flow of a Premium Bond...
31. FASB & IASB -LT projects under contract - reliable estimates of revenue - cost and completion time -Rev - exp and profit are recognized in proportion to total cost incurred to date - divided by total expected cost.
Impact on the B/S of a Par Bond...
Asset Revaluation: IFRS
Financial Assets: US GAAP/Fair Market Value
% of Completion
32. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality
Component depreciation;
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Extended DuPont Equation...
33. Shares are to take over control - Subsidiary - Consolidate financials
Segment Reporting
Intercorporate Investment: > 50% votes...
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Cash flow ratios
34. NI/Avg. Total Assets - NI + Int (1-t) / Avg. Total Assets - Operating ROA: Operating INc/ Avg. Total Assets
Asset Capitalization
Return on Assets ROA...
Effects of Lease Classification on F/S - Operating Lease
Capitalized Intangibles...
35. Impairment is recorded on a Contra asset account - revalued below original cost means contra asset account is 0 1) B/S asset reduced to FMV 2) Loss take to I/S 3) Reversal of org. loss allowed I/S 4) Increase above org. cost to equity (comprehenive
Revaluation below historic cost...
Creative Cash Flows Accounting: Motivation
CFO Disclosure requirement...
days of inv. on hand =
36. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes
days of sales o/s =
Types of accounting changes: accounting estimate
B/S - Long-term Liabilities
Inventory mangement: High T/O (low DOH) and sales growth above industry average
37. Replacement cost subject to: Upper limit = NRV - Loewr limit = NRV - normal profit margin
Intercorporate Investment: 20% - 50% votes...
Calculate dividends declared...
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Market Value (GAAP)...
38. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Operating vs. Non-operating Income
Market Value (GAAP)...
Impact on the Cash Flow of a Zero Coupon Bond...
Characteristics of an effective framework
39. Change in equity from transactions from nonownership sources. Include: NI - chg in foreign currency translation adj. - chg in pension adj to funded status - chg unrealized gains/losses on derivatives contracts accounted for as hedges - chng in unrea
Comprehensive income...
CFO - Direct/Indirect method
B/S - investments
Financial Assets: US GAAP/Fair Market Value
40. 1) Transparency; 2) Comprehensiveness; 3) Consistency
Screening for Potential Equity Investment: Criteria
Characteristics of an effective framework
Financial Ratios based on B/S: Solvency (Coverage)
Lessor Accounting Capital Lease: Sales-Type Lease
41. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)
Form 8-K...
Valuation allowance
IFRS/US GAAP Frameworks: Measurement of Elements...
Effects of Lease Classification on F/S - Operating Lease
42. 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
Valuation allowance
3 C's for Credit Analysis...
B/S - Long-term Liabilities
43. Assets - liabilities - and equity are presented in a single column.
Inventory Valuatoin (LCM)
Financial Ratio based on I/S...
The report format of B/S
Credit Rating Process...
44. EBIT/ Avg. total capital - Total capital includes: debt capital - so int. is aded back to NI
An Increase in the Valuation Allowance Account...
Return on total capital (ROTC)...
DBO Funded Status =
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
45. Depreciation exp = (cost - residual value) x (# units produced / total expected to produce)
Return on Assets ROA...
Analyzing Effective Tax Rate Reconciliation
An Increase in the Valuation Allowance Account...
Units of Production Method
46. 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.
Free Cash Flow -CFO
Defined Benefit Obligations (DBO)
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Creative Cash Flows Accounting: Technique
47. Working Capital = CA - CL - Working Capital TO = Rev/Avg. Working Capital - Fixed Asset TO = Rev/Avg Net Fixed Assets
IFRS/US GAAP Frameworks: F/S elements...
Gross Reporting of Revenue
Activity Ratios
Taxation: Income Tax Expense
48. 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
Installment Method...
Revaluation above historic cost...
Impact on the Cash Flow of a Par Bond...
Ending Inventory =
49. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Impact on the B/S of a Premium Bond...
Creative Cash Flows Accounting: Technique
Double-decline balance (DDB)
Asset Revaluation: IFRS
50. Stock options - Warrants - Convertible debt - Convertible preferred stock
Potentially Dillutive Securities
Intangibles under IFRS...
Inventory mangement: Low T/O (High DOH)...
To investigate the stability of that structure - Kilgore would be best served by looking at...