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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. 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
Units of Production Method
Installment Method...
Analyst Treaments of DTL
Fraud Triangle - 1) Incentive/Pressure
2. Reported BELOW the line.Prohibited under IAS1 1) Losses from expropriation of assets. 2) Uninsured losses from natural disasters - Analyst must determine if it is really THAT extraordinary and if should be included in forecasting
Balance Sheet
Inventory mangement: Low T/O (High DOH)...
Extraordinary Items: Unusual AND Infrequent items...
Sustainable Growth
3. Depreciation exp = (cost-residual value)/ useful life
Straight-line depreciation (SL)
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Asset Revaluation: IFRS
Types of accounting changes: prior period adjustments
4. GAAP: more quantitative rules - IFRS: more qualitative approach based on whether the risks and reward of the asset have tranferred.
Form 8-K...
Double-decline balance (DDB)
Finance (capital) Lease criteria GAAP vs. IFRS
Creative Cash Flows Accounting: Technique
5. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.
Sustainable Growth
Impact on the B/S of a Premium Bond...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Inventory mangement: High T/O (low DOH) and sales growth below industry average
6. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Financial Ratios based on B/S: Solvency (Coverage)
Balance Sheet - formats
DTA Issues
Capitalization of Interest...
7. Pd after more than 1 year - notes & bonds: at PV of future CF pymets - Capital leases - Provisions - Deferred tax
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Financial Implications of Capitalizing...
B/S - Long-term Liabilities
From creditor POV: Int. Coverage;
8. IAS 39 Marketable securities - IAS 2 Inventories (LIFO prohibited) - IAS 16 PP&E - JV (IFRS: proportional consolidation) - IAS 38 Intangibles - IAS 18 & 11 Contruction Contracts - Extraordinary Items: Prohibited in IFRS - Cash Flow Statement
Valuation allowance
Convergence IFRS/US GAAP...
Types of accounting changes...
Motivation to Overstate Assets/Understate Liabilities
9. 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.
Comprehensive income...
Form DEF-14A...
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Operating vs. Non-operating Income
10. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)
IFRS/US GAAP Frameworks: Measurement of Elements...
Forecasting Financial Performance: Application
B/S - short-term investments
Deferred Tax Liability: (DTL)
11. 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
Ending Inventory =
Ratios that directly affect choice of Inventory Account...
Cash Flow From Financing (USA) (Source of Cash)
Forecasting Financial Performance: Top Down Approach...
12. Slow moving or obsolete inventory
Potentially Dillutive Securities
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Inventory mangement: Low T/O (High DOH)...
13. Timing differences (depreciations) - Permanent differences
Low Quality Earnings is result of...
Sources of Differences betweent F/S & T/
Stock options: Use treasury stock method
Free Cash Flow -CFO
14. 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.
Simple capital structure
Net Realizable Value (NRV) (IFRS)
To investigate the stability of that structure - Kilgore would be best served by looking at...
CFI Analysis...
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
Revaluation above historic cost...
Double-decline balance (DDB)
Tax base of an asset
Antidilutive Securities
16. Taxes payable + chg deferred Tax as per Financial Report
Net Realizable Value (NRV) (IFRS)
Sales Basis Revenue Recognitions
Defined Benefit Obligations (DBO)
Taxation: Income Tax Expense
17. Lost sales from stock outs
SEC guidance for Revenue Recognition
Intangibles under IFRS...
BASIC EPS
Inventory mangement: High T/O (low DOH) and sales growth below industry average
18. Companies must file this form to disclose material events including significant asset acquisitions and disposals - changes in management or corporate governance - or matters related to its accountants - financial statements - or the markets on which
Extended DuPont Equation...
Sources of Differences: Temporary
Form 8-K...
Financial Assets: US GAAP/Amortized at Cost
19. 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
BASIC EPS
Impact on the Cash Flow of a Par Bond...
Gain/(loss) on bond early retirement: (derecognition of debt)
Common Size Statement
20. [net income - preferred dividends] + [convertible prf.dividends] + [convertible debt int.] (1-t) / (weighted avg. of c/s o/s) + (shares from conversion of conv. pfd. shares) + (shares from conversion of conv. debt) + (shares issuable from stock optio
Fraud Triangle
FIFO results in: (assuming inflationary period)
Footnote disclosure of Reconciliation of opening and closing carrying values...
Diluted EPS
21. 1) Transparency; 2) Comprehensiveness; 3) Consistency
Cash Conversion Cycle =
Characteristics of an effective framework
days of sales o/s =
B/S - Long-lived assets
22. Improve ROA and Asset TO Ratios - Report higher aquisition goodwill
Effects of Lease Classification on F/S - Finance Lease
Motivation to Understate Assets/Overstate Liabilities
Inventory mangement: Low T/O (High DOH)...
Taxation Analyst Adjustments...
23. You.S. GAAP
Types of accounting changes: accounting principle
Inventory mangement: Low T/O (High DOH)...
Cash Flow: Logic (A = L + E)
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
24. Fair Value of Plan Assets - Defined Benefit Obligation (DBO) - Fair Value > DBO: overfunded (asset on B/S - GAAP) - Fair Value < DBO: underfunded (liability on B/S - GAAP) - (Funded Status = Economic Position of Plan)
DBO Funded Status =
The best indicator of overstating its profits is...
Deferred Tax Asset: (DTA)
Financial Adj to Facilitate Comparison...
25. 1) Scale & Diversification - 2) Operational Efficiency - 3) Margin Stability - 4) Leverage
Footnote Finance Liability Disclosure
FIFO results in: (assuming inflationary period)
4 General Categories for Creditworthiness/Capacity...
CFO - Direct method
26. 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
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Defined Benefit Plans
Ending Inventory =
27. 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.
Balance Sheet
Footnote disclosure of Reconciliation of opening and closing carrying values...
Effects of Lease Classification on F/S - Operating Lease
Fraud Triangle - 2) Opportunity
28. I/S and B/S - Each line is relative to base year
Horizontal Common Size Statements...
Fraud Triangle - 2) Opportunity
Finance (capital) Lease criteria (under US GAAP)
Finance (capital) Lease criteria GAAP vs. IFRS
29. NI/Avg. Total Assets - NI + Int (1-t) / Avg. Total Assets - Operating ROA: Operating INc/ Avg. Total Assets
Inventory Cost Flow Methods...
Analyst Treaments of DTL
Free Cash Flow to Equity - FCFE
Return on Assets ROA...
30. Securities that would INCREASE EPS if exercised
IOSCO
DTA Issues
Antidilutive Securities
IFRS Revenue Recognition For Service
31. 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
Financial Ration based on B/S: Liquidity Ratios
Free Cash Flow to the Firm - FCFF
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Vertical Common Size Statements...
32. A: Increase = use cash (-) - Decrease = source cash (+) - L: Increase = source cash (+) - Decrease = use of cash (-) - E: Increase = source cash (+) - Decrease = use of cash (-)
Financial Assets: US GAAP/Fair Market Value
% of Completion
Cash Flow: Logic (A = L + E)
Low Quality Earnings is result of...
33. Shares are to take over control - Subsidiary - Consolidate financials
Intercorporate Investment: > 50% votes...
Sales Basis Revenue Recognitions
IFRS/US GAAP Frameworks: Measurement of Elements...
Financial Ration based on B/S: Liquidity Ratios
34. EU 1) Int'l Accounting Standards Board; 2) Unified int'l frameworks of accounting standards (IFRS); 3) Addopted by EU in 2005
IFRS Revenue Recognition
IASB
Form 8-K...
Implication for Analysts: Be aware of differences in tax reconcilation between periods
35. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Inventory Valuatoin (LCM)
The objective of f/s is to...
Not all CF increase are Sustainable. Example of how Mgmt can Manipulate Cash Flow Statement
Extended DuPont Equation...
36. Inflow - (bringing bond UP to par)
Traditional DuPont Equation...
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Net Periodic Benefit Costs
Creative Cash Flows Accounting: Technique
37. ROE = (NI/Sales) x (Sales/Assets) x (Assets/Equity) or ROE= Net Profit Margin x Asset TO x Leverage Ratio
Free Cash Flow -CFO
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
Screening for Potential Equity Investment: Criteria
Traditional DuPont Equation...
38. 1) if 50% of its revenue is earned externally 2) if a business area has at least 10% of a firm's: Revenue; or Operating profit; or Use of asset 3) Business and geographical segments
Segment Reporting
Sarbanes-Oxley Management Report...
Ending Inventory =
Return on Equity (ROE)...
39. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher
Motivation to Over-report Earnings
Impact on the Cash Flow of a Premium Bond...
Antidilutive Securities
Segment Reporting
40. Tax liability based on taxable income as per TAX Report/RETURN
Taxation: Tax Payable
Horizontal Common Size Statements...
Valuation allowance
Cost recovery method...
41. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Convergence IFRS/US GAAP...
Defined Contribution Plans
Sustainable Growth
Intercorporate Investment: < 20% votes...
42. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
Under Completed Contract Method...
Comprehensive income...
Inventory mangement: High T/O (low DOH) and sales growth above industry average
IFRS Revenue Recognition For Service
43. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal
Deferred Tax Asset: (DTA)
Valuation Allowance...
Free Cash Flow to the Firm - FCFF
Fraud Triangle - 2) Opportunity
44. If PV of min lease pymt < cost of asset 1) lessor is a dealer or seller of the leased equipment 2) at the time of lease inception - lessor recognized a gross profit on sale. (NI - are/E - and Assests are higher) 3) Interest rev recognized over period
Net Realizable Value (NRV) (IFRS)
days of sales o/s =
Lessor Accounting Capital Lease: Sales-Type Lease
Return on Equity (ROE)...
45. Shows the performance of the company over a reporting period.
Cash Flow From Operations (CFO) - IFRS
CFO - Indirect method steps...
Taxation: Tax Payable
Income Statement
46. 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.
days of sales o/s =
B/S - investments
LIFO is appropriate
IFRS: Presentation Requirements
47. Derivatives - Non-derivative investments with fair value exposure hedged by derivatives
Financial Liability: US GAAP/Fair Market Value
Depreciation Methods...
CFO - Direct method
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
48. 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
Dilutive Securities
Funded Status US GAAP & IFRS
Defined Contribution Plans
Tax base on a liability
49. Used when estimates of revenue or cost are unreliable or short-term contracts - (US GAAP only) Revenue - expense - and profit is recognized at completion (IFRS) Revenue is recognized to the extent of contract cost - cost are expensed when incureed
Funded Status US GAAP & IFRS
Under Completed Contract Method...
IFRS/US GAAP Frameworks: F/S elements...
Inventory Valuatoin (LCM)
50. 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
Screening for Potential Equity Investment: Criteria
Capitalization of Interest...
IFRS/US GAAP Frameworks: Measurement of Elements...
Balance Sheet - formats