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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.
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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. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability
Financial Ratios based on B/S: Solvency (Coverage)
Creative Cash Flows Accounting: Motivation
Taxation Analyst Adjustments...
CFO - Indirect method steps...
2. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default
Debt covenants
Cash Flow From Financing (USA) (Source of Cash)
Ending Inventory =
Taxable Income
3. Shows the performance of the company over a reporting period.
FIFO ending inventory =
Form 8-K...
Complex Capital Structure
Income Statement
4. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
DTA/DTL: Effect on Net Income when Tax Rate decreases...
IFRS/US GAAP Frameworks: purpose of framework
Low Quality Earnings is result of...
IFRS Revenue Recognition For Service
5. NRV = Est. selling cost - Est. cost of complition - selling costs
Taxation Disclosure Requirements
# of days payable =
Net Realizable Value (NRV) (IFRS)
Segment Reporting
6. For inventory that does not deteriorate with age.
LIFO is appropriate
Taxation: Income Tax Expense
Fraud Triangle - 1) Incentive/Pressure
Installment Method...
7. EU 1) Int'l Accounting Standards Board; 2) Unified int'l frameworks of accounting standards (IFRS); 3) Addopted by EU in 2005
CFO - Direct/Indirect method
IASB
Effects of Lease Classification on Ratios - Operating Lease
Activity Based Restrictions
8. Slow moving or obsolete inventory
Inventory mangement: Low T/O (High DOH)...
Types of accounting changes...
Cash Flow: Logic (A = L + E)
Intangible Assets
9. Pd after more than 1 year - notes & bonds: at PV of future CF pymets - Capital leases - Provisions - Deferred tax
B/S - Long-term Liabilities
B/S - Long-lived assets PP&E
IFRS/US GAAP Frameworks: purpose of framework
Credit Rating Process...
10. Is required under IFRS but not under GAAP
Footnote disclosure of Reconciliation of opening and closing carrying values...
Impact on the B/S of a Par Bond...
CFO - Direct/Indirect method
Impairments recognition (GAAP)
11. Interest expense = Coupon rate
Deferred Tax Asset: (DTA)
B/S - Long-lived assets
Form 8-K...
Impact on the B/S of a Par Bond...
12. You.S. GAAP
Cost included in Inventory on b/s...
Sources of Differences betweent F/S & T/
Capitalization of Interest...
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
13. 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
IFRS/US GAAP Frameworks: Measurement of Elements...
Under Completed Contract Method...
Types of accounting changes: accounting principle
Taxation Analyst Adjustments...
14. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes
Free Cash Flow to the Firm - FCFF
Types of accounting changes: accounting estimate
Credit Rating Process...
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
15. + 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) - +/-
Net Periodic Benefit Costs
Deferred Tax Liability: (DTL)
Intercorporate Investment: 20% - 50% votes...
Reasons to Lease...
16. +Cash rcvd from customer - +Cash dividends rcvd - +Cash interest rcvd - +Other cash income ((trading securities) - Payment to suppliers - Cash expenses (wages etc) - Cash interest paid - Cash taxes paid
Ratios that directly affect choice of Inventory Account...
Cash Flow From Operations (CFO) - FASB
Finance (capital) Lease criteria GAAP vs. IFRS
Intercorporate Investment: > 50% votes...
17. 1) Character: Mgmt reputation and history of repayment 2) Collateral: ability to pledge specific collateral reduces lender risk 3) Capacity: ability to replay debt. requires LT view of firms prospect.
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18. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower
Funded Status US GAAP & IFRS
Balance Sheet - formats
FIFO results in: (assuming inflationary period)
Taxation: Income Tax Expense
19. 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
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Valuation allowance
IOSCO
Gross Reporting of Revenue
20. 1) Intention to hold >1 year (e.g. debt or equity) valued @ cost or mkt value 2) Equity accounted investments
B/S - investments
FASB - Harmonization
Financial Ratios based on B/S: Solvency ratio
Ending Inventory =
21. CFO: no impact - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower (b/c no impact) and CFF is higher
Impact on the Cash Flow of a Zero Coupon Bond...
The 4 Qualitative Characteristics of IFRS
Unusual OR Infrequent items...
Inventory Systems...
22. Securities that would DECREASE EPS if exercised - If X< Avg. stock price then could be exercised - If X> Avg. stock price then will not be exercised
Cost included in Inventory on b/s...
Types of accounting changes: prior period adjustments
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Dilutive Securities
23. 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
Extraordinary Items: Unusual AND Infrequent items...
Taxable Income
Bond Issuance Cost under GAAP/IFRS
Impact on the B/S of a Par Bond...
24. 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
Effects of Lease Classification on Ratios - Finance Lease
Impact on the Cash Flow of a Par Bond...
Fraud Triangle - 1) Incentive/Pressure
Double-decline balance (DDB)
25. Tax liability based on taxable income as per TAX Report/RETURN
LIFO is appropriate
Taxation: Tax Payable
Taxation Analyst Adjustments...
An Increase in the Valuation Allowance Account...
26. Interest Expense = Coupon + Amortization = PV of future CF x market yield @ issuance
Implication for Analysts: Be aware of differences in tax reconcilation between periods
FIFO is appropriate
Impact on the B/S of a Discount Bond...
IFRS/US GAAP Frameworks: Measurement of Elements...
27. 1) Calculate cash raised on exercise 2) Repurchase shares at avg. price 3) New Shares = exercised - repurchased
Footnote disclosure of Reconciliation of opening and closing carrying values...
ROE interpretation: if ROE is low...
Inventory Valuatoin (LCM)
Stock options: Use treasury stock method
28. Unlisted instruments - Held-to-maturity investments - Loans - Receivables
Impairments recognition (GAAP)
Taxation: Tax Payable
Financial Assets: US GAAP/Amortized at Cost
# of days payable =
29. 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.
Inventory Systems...
Impact on the B/S of a Premium Bond...
CFI Analysis...
Defined Contribution Plans
30. US Gaap: Balance Sheet - IFRS:Disclosed in Footnotes - May be mentioned in MD&A if mgnt considers it significant
Taxation: Tax Payable
Finance (capital) Lease criteria (under US GAAP)
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Cash Flow From Operations (CFO) - IFRS
31. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance
Impact on the B/S of a Premium Bond...
Simple capital structure
Taxation Analyst Adjustments...
Sales Basis Revenue Recognitions
32. '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
Activity Based Restrictions
Cash Flow From Investing (USA) (Assets)
Reasons to Lease...
IFRS/US GAAP Frameworks: objective of F/S
33. LIFO after-tax profit + (change in LIFO reserve)(1 - t)
FIFO after-tax profit =
Return on Assets ROA...
3 C's for Credit Analysis...
Unusual OR Infrequent items...
34. CV of Op. Inc = std dev. EBIT/ Mean EBIT - CV of Revenue: std. dev Rev/ mean Rev. - Operating Leverage = %chg in EBIT/ %chg in Sales
Footnote disclosure of Reconciliation of opening and closing carrying values...
Analyzing Effective Tax Rate Reconciliation
Implication for Analysts: Be aware of differences in tax reconcilation between periods
Operating Risk Ratios...
35. Trade relief - Contingent consideration - Union concessions
Inventory Cost Flow Methods...
Cash Conversion Cycle =
Extraordinary Items: Unusual AND Infrequent items...
Motivation to Under-report Earnings
36. 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.
Component depreciation;
Types of accounting changes: accounting estimate
Form DEF-14A...
Ratios that directly affect choice of Inventory Account...
37. Assets - liabilities - and equity are presented in a single column.
Sales Basis Revenue Recognitions
Analyst Treaments of DTL
Analyzing Effective Tax Rate Reconciliation
The report format of B/S
38. Higher share price - Lower borrowing cost - Higher incentive compensation
Credit Rating Process...
Sources of Differences: Permanent
Creative Cash Flows Accounting: Motivation
Antidilutive Securities
39. 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
Credit Rating Process...
The 4 Qualitative Characteristics of IFRS
The report format of B/S
B/S - Long-lived assets
40. 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
Warning Signs of Earnings Manipulation
FASB
Straight-line depreciation (SL)
Which of the following characteristics should be of least concerned about management's opportunities to commit fraud?
41. 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
Return on total capital (ROTC)...
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
Steps of F/S Analysis
Financial Assets: US GAAP/Fair Market Value
42. 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.
An Increase in the Valuation Allowance Account...
SEC guidance for Revenue Recognition
Bond Issuance Cost under GAAP/IFRS
B/S - Stockholders' Equity
43. 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
Taxation Disclosure Requirements
Asset Revaluation: IFRS
Return on Equity (ROE)...
Horizontal Common Size Statements...
44. Efficient inventory managment
Finance (capital) Lease criteria (under US GAAP)
LIFO results in: (assuming inflationary period)
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Fraud Triangle
45. 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.
Types of accounting changes: accounting principle
Impact on the Cash Flow of a Par Bond...
Taxation Analyst Adjustments...
Motivation to Overstate Assets/Understate Liabilities
46. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up
Taxation: Income Tax Expense
Steps of F/S Analysis
days of sales o/s =
IFRS Revenue Recognition For Service
47. 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.
Financial Ration based on B/S: Liquidity Ratios
% of Completion
Effects of Lease Classification on Ratios - Finance Lease
Creative Cash Flows Accounting: Technique
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
Revaluation below historic cost...
Fraud Triangle
Installment Method...
FASB - Harmonization
49. 1st: Net Income - dividends declared = chg in are/E - Then: Dividends declared +/- chg dividends payable = cash dividends paid.
Cash Flow From Operations (CFO) - FASB
Ratios that directly affect choice of Inventory Account...
Vertical Common Size Statements...
Calculate dividends declared...
50. 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
Extended DuPont Equation...
Warning Signs of Earnings Manipulation
Comprehensive income...
Fundamental principles for PREPARING f/s under IFRS: (IAS No 10