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Test your basic knowledge |
Advanced Financial Reporting And Analysis
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Study First
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. = LIFO ending inventory + LIFO reserve FIFO after-tax profit
FIFO ending inventory =
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Forecasting Financial Performance: Application
Impact on the B/S of a Par Bond...
2. 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
Financial Ratio based on I/S...
Form 144...
Measurement of A & L disclosure in footnotes
Financial Ration based on B/S: Liquidity Ratios
3. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.
Simple capital structure
Vertical Common Size Statements...
Impact on the Cash Flow of a Premium Bond...
IFRS/US GAAP Frameworks: underlying assumptions...
4. Required by IFRS - Permited by US GAAP
Installment Method...
B/S - Long-lived assets
Component depreciation;
Activity Based Restrictions
5. 1) Increase comparability; 2) Reduce expense of overseas capital; 3) Reduce the expense of producing consolidated accounts
Impact on the Cash Flow of a Discount Bond...
The best indicator of overstating its profits is...
Effects of Lease Classification on F/S - Finance Lease
FASB - Harmonization
6. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
Deferred Tax Asset: (DTA)
CFI Analysis...
Cash Flow: Logic (A = L + E)
Financial Lease Reporting
7. 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...
Low Quality Earnings is result of...
Debt covenants
Cost recovery method...
8. 'Equity' -Chg in debt - Cash raised from equity and debt - -Chg in c/s - Cash spent on repurchasing equity or redeeming debt -Dividends paid - Calculate dividend declared: NI -*Div.Declared = chg in are/E - Div. Declared +(-) chg in div. payable = c
Return on Assets ROA...
Gross Reporting of Revenue
Cash Flow From Financing (USA) (Source of Cash)
Financial Ration based on B/S: Liquidity Ratios
9. Amount deductible in future tax return
SEC guidance for Revenue Recognition
Tax base of an asset
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Finance (capital) Lease criteria (under US GAAP)
10. Assess liquidity - solvency and financial flexibiliy
Statement of Cash Flow - relevance...
Defined Benefit Plans
The 4 Qualitative Characteristics of FASB...
Sales Basis Revenue Recognitions
11. 1) is a contra asset account used to reduce the value of a DTA - 2) it is used to reduce the asset when future taxable income is deemed to be insefficient to fully use the DTA.
Cost included in Inventory on b/s...
B/S - investments
IFRS Revenue Recognition For Service
Valuation allowance
12. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default
Operating Risk Ratios...
IFRS Revenue Recognition
Debt covenants
Vertical Common Size Statements...
13. (net income - preferred dividends)/weighted average of common shares outstanding - only income from continuing operations is considered
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
BASIC EPS
Sources of Differences: Permanent
Impairments recognition (GAAP)
14. It is the purchase of an asset using debt finance.
What is the economic substance of financial (capital) lease?
B/S - investments
% of Completion
Defined Benefit Obligations (DBO)
15. Actual cash outflow for taxes paid during current period
CFO - Indirect method steps...
Forecasting Financial Performance: Application
Income Tax Paid...
Motivation to Under-report Earnings
16. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)
Barter (IASB & FASB)
Measures of Operating Performance - Efficiency Ratios...
IFRS/US GAAP Frameworks: Measurement of Elements...
DBO Funded Status =
17. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Financial Liability: US GAAP/Fair Market Value
Intercorporate Investment: < 20% votes...
Convergence IFRS/US GAAP...
DBO Funded Status =
18. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Trade-Offs Qualitative Characteristics of IFRS
Cash Flow From Financing (USA) (Source of Cash)
Types of accounting changes...
Financial Ratios based on B/S: Solvency (Coverage)
19. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
Vertical Common Size Statements...
Gross Reporting of Revenue
Stock options: Use treasury stock method
The account format of B/S
20. 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
Footnote disclosure of Reconciliation of opening and closing carrying values...
Footnote Finance Liability Disclosure
Return on Equity (ROE)...
Intangibles under IFRS...
21. Assets - liabilities - and equity are presented in a single column.
Capitalization of Interest...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Finance (capital) Lease criteria (under US GAAP)
The report format of B/S
22. Delay Supplier pymt: boost CFO; review days' sales in AP; Financing of payables: use N/P to pay off AP; manipulate timing of CFO; Securitization of A/are: accelerates appearance of collection - boosts CFO; Tax benefit of stock options: lower tax paid
Financial Ratios based on B/S: Solvency ratio
Creative Cash Flows Accounting: Technique
Inventory mangement: High T/O (low DOH) and sales growth below industry average
CFO Analysis...
23. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Impact on the Cash Flow of a Par Bond...
FIFO results in: (assuming inflationary period)
Effects of Lease Classification on Ratios - Operating Lease
24. 1) Evidence of an arrangement; 2) Completion of earnings process; 3) Price is determined or determinable; 4) Assurance of payment
FIFO ending inventory =
Cash Conversion Cycle =
Component depreciation;
SEC guidance for Revenue Recognition
25. 1st: Net Income - dividends declared = chg in are/E - Then: Dividends declared +/- chg dividends payable = cash dividends paid.
Effective Tax Rate
IASB - Goals
Calculate dividends declared...
Complex Capital Structure
26. Includes: cash flow from interst Rec'd and Paid - and Dividend received. Includes all income taxes paid.
Creative Cash Flows Accounting: Motivation
IFRS: Required F/S
Inventory Systems...
Cash Flow From Operations (CFO) - FASB
27. Off B/S asset or liability = Footnotes disclosure - Lease payments are expensed when due via I/S - Payments are CFO outflows
B/S - Stockholders' Equity
CFI Analysis...
Operating Lease
Segment Reporting
28. Cash Flow available for distribution to the c/s; after all obligations have been paid. CFO - fixed capital investment + net debt increase or CFO - net cap expenditure + net borrowings
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Warning Signs of Earnings Manipulation
Free Cash Flow to Equity - FCFE
29. + 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) - +/-
IFRS: Required F/S
Add/ Sub changes to related b/s operating accounts
Net Periodic Benefit Costs
Diluted EPS
30. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Inventory mangement: Low T/O (High DOH)...
Fraud Triangle - 1) Incentive/Pressure
Measures of Operating Performance - Efficiency Ratios...
Antidilutive Securities
31. FIFO: EI = newest purchases - LIFO: EI = oldest purchases - Avg. Costs: EI = Available for sale/Units - Specific ID: high value items (cars - diamonds etc)
Form DEF-14A...
LIFO results in: (assuming inflationary period)
Inventory Cost Flow Methods...
FASB - Harmonization
32. Replacement cost subject to: Upper limit = NRV - Loewr limit = NRV - normal profit margin
IFRS: Presentation Requirements
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Market Value (GAAP)...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
33. NRV = Est. selling cost - Est. cost of complition - selling costs
Gain/(loss) on bond early retirement: (derecognition of debt)
Net Realizable Value (NRV) (IFRS)
Inventory Valuatoin (LCM)
Forecasting Financial Performance: Top Down Approach...
34. Shows sales and cost of goods sold.Under GAAP: 1) must be primary obligor under the contract; 2) bear inventory and credit risk; 3) have the ability to choose its supplier; 4) have reasonable latitude to set the price.
Cost recovery method...
Depreciation Methods...
IFRS/US GAAP Frameworks: Recognition of Elements...
Gross Reporting of Revenue
35. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Types of accounting changes: accounting principle
Defined Contribution Plans
Impact on the B/S of a Premium Bond...
Free Cash Flow to Equity - FCFE
36. 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.
Fraud Triangle
Form DEF-14A...
Defined Benefit Obligations (DBO)
IFRS/US GAAP Frameworks: objective of F/S
37. 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
Fraud Triangle - 1) Incentive/Pressure
Common Size Statement
IASB
Balance Sheet
38. Contributed capital = c/s @ par plus add'l paid-in capital - Treasury stock (reaquired by frim but not yet retired) - are/E = Accum' NI less dividends - Minority (non-controlling) interest - Comprehensive income items: all chg in SOE not in I/S or fr
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39. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
Intangible Assets
FASB - Harmonization
Valuation allowance
IFRS/US GAAP Frameworks: Recognition of Elements...
40. Working Capital = CA - CL - Working Capital TO = Rev/Avg. Working Capital - Fixed Asset TO = Rev/Avg Net Fixed Assets
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Measurement of A & L disclosure in footnotes
Cash flow ratios
Activity Ratios
41. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Funded Status US GAAP & IFRS
Operating vs. Non-operating Income
3 C's for Credit Analysis...
Comprehensive income...
42. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
Deferred Tax Liability: (DTL)
B/S - short-term investments
Auditor/Audit Opinion
Defined Benefit Plans
43. Refers to changes from one GAAP method or IFRS method to another IFRS & US GAAP require prior year data shown in f/s to be adjusted.
Footnote Finance Liability Disclosure
Motivation to Understate Assets/Overstate Liabilities
Types of accounting changes: accounting principle
Trade-Offs Qualitative Characteristics of IFRS
44. 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...
Cash Flow From Operations (CFO) - FASB
Tax base on a liability
Auditor/Audit Opinion
45. Trading securities - Available-for-sale - Derivatives (standalone or embedded in non-derivative intrument) - Assets with fair value exposure hedged by derivatives
Financial Assets: US GAAP/Fair Market Value
IFRS/US GAAP Frameworks: objective of F/S
Motivation to Under-report Earnings
Vertical Common Size Statements...
46. 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
days of inv. on hand =
ROE interpretation: if ROE is low...
IFRS: Presentation Requirements
Asset Capitalization
47. Higher share price - Lower borrowing cost - Higher incentive compensation
Creative Cash Flows Accounting: Motivation
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Form 144...
Discontinued Operations...
48. 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
Financial Liability: US GAAP/Fair Market Value
Disclosure for each segment...
The best indicator of overstating its profits is...
Roles of financial reporting & analysis include...
49. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
Inventory Systems...
The account format of B/S
3 C's for Credit Analysis...
days of inv. on hand =
50. Divdends and share repurchases - Production and investment - M&A - New debt issuance - Payoff pattern and liquidation priority - Maintenance of assets used as collateral
Finance (capital) Lease criteria GAAP vs. IFRS
The best indicator of overstating its profits is...
Activity Based Restrictions
Cash Conversion Cycle =