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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. 1) Meet CFO (strategy; industry overview - accounting policy) 2) Tour major facilities 3) Vote on analyst recommendations (bus.& fin. risk) 4) Monitor publicly distributed ratings
Effects of Lease Classification on F/S - Operating Lease
Convergence IFRS/US GAAP...
Measures of Operating Performance - Efficiency Ratios...
Credit Rating Process...
2. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher
Under Completed Contract Method...
Expensed Intangibles...
Taxation: Tax Payable
Impact on the Cash Flow of a Premium Bond...
3. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF
Fraud Triangle - 2) Opportunity
Simple capital structure
Gross Reporting of Revenue
Cash Flow From Operations (CFO) - IFRS
4. = LIFO ending inventory + LIFO reserve FIFO after-tax profit
Form 144...
4 General Categories for Creditworthiness/Capacity...
FIFO ending inventory =
Financial Adj to Facilitate Comparison...
5. 1) B/S asset increased to FMV 2) Increase above original cost to equity via revaluation surplus account (comprehensive Income)
Asset Revaluation: IFRS
IASB - Goals
Revaluation above historic cost...
Financial Liability: US GAAP/Amortized at Cost
6. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
Vertical Common Size Statements...
Types of accounting changes: accounting estimate
Cash Flow From Operations (CFO) - FASB
Expensed Intangibles...
7. 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 =
Credit Analysis: Ratios
Auditor/Audit Opinion
IFRS: Required F/S
Effects of Lease Classification on F/S - Finance Lease
8. Research = Expensed Development may be capitalized when the following critera is met: (ie if in the Development stage and NOT research stage) 1) process is clearly identified 2) Cost can be clearly idenfified 3) Technical feasibility established 4) M
Inventory mangement: Low T/O (High DOH)...
CFO Analysis...
Intangibles under IFRS...
FIFO ending inventory =
9. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality
Lessor Accounting Capital Lease: Sales-Type Lease
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10
3 C's for Credit Analysis...
CFO - Direct/Indirect method
10. GAAP: shown as a separate prepaid asset and amortized - IFRS: Deducted from proceeds and liability therefore effective interest rate is HIGHER under IFRS than GAAP.
Bond Issuance Cost under GAAP/IFRS
Impact on the B/S of a Discount Bond...
Diluted EPS
Analyzing Effective Tax Rate Reconciliation
11. It is the purchase of an asset using debt finance.
What is the economic substance of financial (capital) lease?
FIFO ending inventory =
DTA Issues
The account format of B/S
12. 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 =
Unusual OR Infrequent items...
Financial Adj to Facilitate Comparison...
Intangible Assets
Financial Liability: US GAAP/Amortized at Cost
13. 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.
Intercorporate Investment: > 50% votes...
Financial Lease Reporting
Credit Rating Process...
IFRS/US GAAP Frameworks: Recognition of Elements...
14. 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)
SEC guidance for Revenue Recognition
Sarbanes-Oxley Management Report...
CFO - Indirect method steps...
CFO - Direct/Indirect method
15. 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
Deferred Tax Asset: (DTA)
Roles of financial reporting & analysis include...
Sources of Differences: Permanent
Double-decline balance (DDB)
16. 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
Under Completed Contract Method...
Operating Risk Ratios...
Motivation to Under-report Earnings
Fraud Triangle - 3) Attitude/rationalization
17. Tax Rate down: DTL down -> Inc. Tax Exp down -> NI up - DTA down -> Inc. Tax Exp up -> NI down
Activity Ratios
Inventory Valuatoin (LCM)
IFRS Revenue Recognition For Service
DTA/DTL: Effect on Net Income when Tax Rate decreases...
18. 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.
Funded Status US GAAP & IFRS
Fraud Triangle - 1) Incentive/Pressure
Inventory Valuatoin (LCM)
Footnote disclosure of Reconciliation of opening and closing carrying values...
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 -
Forecasting Financial Performance: Top Down Approach...
days of sales o/s =
The best indicator of overstating its profits is...
Inv. Valuation reporting Inventory ABOVE costs...
20. 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
days of sales o/s =
B/S - Long-lived assets PP&E
Inventory Cost Flow Methods...
IASB
21. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method
Finance (capital) Lease criteria (under US GAAP)
Intercorporate Investment: 20% - 50% votes...
Screening for Potential Equity Investment: Criteria
Impact on the Cash Flow of a Par Bond...
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
CFO Analysis...
Measures of Operating Performance - Efficiency Ratios...
Effects of Lease Classification on F/S - Finance Lease
Return on Equity (ROE)...
23. 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.
DBO Funded Status =
% of Completion
Balance Sheet
Impairments recognition (GAAP)
24. Profit is recognized only when it exceeds estimated total cost.
Cost recovery method...
Intercorporate Investment: 20% - 50% votes...
CFO - Indirect method steps...
BASIC EPS
25. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.
Asset Revaluation: IFRS
Inventory Systems...
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
IFRS/US GAAP Frameworks: underlying assumptions...
26. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
IASB
Form DEF-14A...
IFRS Revenue Recognition For Service
Income Tax Paid...
27. 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.
The objective of f/s is to...
Analysis: Market Value of Debt
Financial Ration based on B/S: Liquidity Ratios
IFRS: Presentation Requirements
28. 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
Asset Capitalization
Impact on the Cash Flow of a Premium Bond...
Ratios that directly affect choice of Inventory Account...
Cost included in Inventory on b/s...
29. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
FIFO ending inventory =
DTA Issues
Operating vs. Non-operating Income
Form 144...
30. Current Ratio (CA/CL): lower - Work. Cap (CA -CL): Lower - Asset TO: (Sales/TA): Lower - ROA (EAT/TA): Lower - ROE (EAT/E): Lower - Debt/Equity: Higher - Since Int. exp + depre > lease pymt in the early years. This decreases NI - and Profitability ra
Defined Benefit Plans
Effects of Lease Classification on Ratios - Finance Lease
CFO Disclosure requirement...
Form 8-K...
31. All other liabilities (e.g. bonds - notes payables - leases)
Financial Liability: US GAAP/Amortized at Cost
Forecasting Financial Performance: Top Down Approach...
Impairments recognition (GAAP)
IFRS/US GAAP Frameworks: purpose of framework
32. 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
Antidilutive Securities
Impairments recognition (GAAP)
Complex Capital Structure
IFRS/US GAAP Frameworks: Recognition of Elements...
33. Assess liquidity - solvency and financial flexibiliy
Statement of Cash Flow - relevance...
Financial Assets: US GAAP/Fair Market Value
Analysis: Market Value of Debt
Taxable Income
34. 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
Footnote Finance Liability Disclosure
Intercorporate Investment: < 20% votes...
The best indicator of overstating its profits is...
Creative Cash Flows Accounting: Motivation
35. 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
The account format of B/S
FIFO is appropriate
Capitalization of Interest...
Dilutive Securities
36. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Traditional DuPont Equation...
Defined Contribution Plans
Impact on the Cash Flow of a Zero Coupon Bond...
Taxation: Tax Payable
37. 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.
CFI Analysis...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
IFRS Revenue Recognition For Service
Net Reporting of Revenue
38. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
IFRS: Presentation Requirements
B/S - Long-lived assets PP&E
Sustainable Growth
FASB - Harmonization
39. Income subject to tax as per Tax Return
Activity Ratios
Taxable Income
Revaluation below historic cost...
Statement of Cash Flow - relevance...
40. GAAP: direct method must disclose adj to reconcile NI to CFO. reconciliation is NOT required for IFRS. IFRS: pymts for Int & Taxes MUST be disclosed separately in the CF Stmnt under direct or indirect. Under GAAP - this can be reported in CF stmnt or
3 C's for Credit Analysis...
Inventory mangement: Low T/O (High DOH)...
CFO Disclosure requirement...
Types of accounting changes: accounting principle
41. Potentially dilutive securitites [options - warrants - convertible securities]
B/S - Stockholders' Equity
Complex Capital Structure
Effects of Lease Classification on Ratios - Finance Lease
Depreciation Methods...
42. 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...
Effective Tax Rate
Add/ Sub changes to related b/s operating accounts
Effects of Lease Classification on Ratios - Operating Lease
43. LIFO after-tax profit + (change in LIFO reserve)(1 - t)
B/S - short-term investments
Effective Tax Rate
Roles of financial reporting & analysis include...
FIFO after-tax profit =
44. Low: P/E - P/CF - or P/S - High: ROE - ROA - growth rates of sales and earnings - Low: leverage
Screening for Potential Equity Investment: Criteria
Under Completed Contract Method...
Diluted EPS
B/S - Stockholders' Equity
45. 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
% of Completion
Inventory mangement: Low T/O (High DOH)...
Defined Contribution Plans
Analysis: Market Value of Debt
46. 1)DTL - DTA - valuation allowance - Net ? in valutaion allowance over the period 2) unrecognized DTL or undistributed earning from subsidiaries & JVs 3) Current yr tax effect of each type of temp difference 4)Components of Inc Tax Expense 5)Tax loss
Complex Capital Structure
Depreciation Methods...
DBO Funded Status =
Taxation Disclosure Requirements
47. Off B/S asset or liability = Footnotes disclosure - Lease payments are expensed when due via I/S - Payments are CFO outflows
Revaluation above historic cost...
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Financial Implications of Capitalizing...
Operating Lease
48. Improve ROA and Asset TO Ratios - Report higher aquisition goodwill
FIFO ending inventory =
FIFO results in: (assuming inflationary period)
Motivation to Understate Assets/Overstate Liabilities
B/S - Stockholders' Equity
49. 1) Evaluating equity investments for a portfolio; 2) Evaluating potential M&A; 3) Evaluating a subsidiary of a parent company; 4) Deciding on private equity/ venture cap investment 5) Determine creditworthiness - borrowing; 6) Extending credit to
IFRS Revenue Recognition
FIFO results in: (assuming inflationary period)
Expensed Intangibles...
Roles of financial reporting & analysis include...
50. Actual cash outflow for taxes paid during current period
Convergence IFRS/US GAAP...
Income Tax Paid...
Extended DuPont Equation...
Effects of Lease Classification on Ratios - Operating Lease