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FAR - Fact Nuggets > Financial Reporting > Flashcards

Financial Reporting Flashcards

1
Q

How do you calculate a return on ratios?

A

Net income divided by…

ROA = NI / average assets

ROE = NI / Average total equity

Return on sales = EBIT / Sales (net)

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2
Q

How do you calculate turnover ratios?

A

Divide sales/COGS by what you are turning over

A/R turn = Sales (net credit) / Avg AR

Asset turn= Sales (net) / Avg total assets

Inventory turn = COGS / Avg inventory

A/P turn = COGS / Av. AP

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3
Q

How do you calculate Days Sales Outstanding?

A

Days in…. take 365 / turnover ratio answer

Cash conversion cycle is days in (A/R + inventory - A/P). How long it takes to convert outflow of cash to inflow of cash.

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4
Q

How do you calculate “to” ratios?

A

“to” means divide by

Debt to equity = Total Liab. / total equity

Debt to assets = Total Liab. / Total Assets

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5
Q

How do you calculate margin ratios?

A

divide by sales

Gross margin = (Sales - COGS) / sales

Profit margin = Net income / sales

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6
Q

How do you calculate times interest earned?

A

EBIT / interest expense (Earnings before interest and taxes)

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7
Q

What are the significant accounting policies included in disclosures?

A
  • Inventory method
  • Depreciation method
  • Securities classified as cash and cash equivalents
  • Basis for consolidation
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8
Q

What Risks and Uncertainties are included in MD&A?

A
  • Nature of operations
  • Use of estimates
  • Certain significant estimates
  • Current vulnerabilities due to significant concentrations
  • Going concern assessment
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9
Q

What is the calculation for basic EPS?

A
  • Net income - Preferred Stock Dividends / Weighted average shares of common
  • EPS is calculated after taxes
  • Preferred dividends based on declared non-cumulative. current year dividend if cumulative.
  • Weighting based on number of months outstanding.
  • Stock dividends and splits are assumed to be outstanding since inception.
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10
Q

What are the filing deadlines for 10Q?

A

40 days - large accelerated (over $700m) 40 days - accelerated (between $75 and under $700m) 45 days - non accelerated

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11
Q

What are the filing deadlines for form 10-K?

A

60 days - large accelerated (over $700m) 75 days - accelerated (between $75 and under $700m) 90 days - non accelerated

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12
Q

What financial statements are reported for consolidation at acquisition?

A
  • Balance Sheet ( P + S + incremental FV)
  • Income statement (P entire year)
  • Statement of Retained Earnings (P only) Statement of Cash Flow (P entire year)
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13
Q

What three aspects of financial reporting is addressed by GAAP?

A
  • Recognition -when it is recorded
  • measurement - how it is recorded
  • disclosure- anything not captured by the financial statements
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14
Q

What are the assumptions of accrual basis accounting?

A

EGUT

  • Entity - business entity is separate and distinct from owner
  • Going concern -business assumed to have an indefinite life
  • Unit of measurement - things are measured in monetary unit in country in which it operates
  • Time period - indefinite life of business is broken into smaller time frames years, quarters, months
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15
Q

What is form 10 Q?

A
  • Quarterly reviewed not audited financial statements filed with SEC.
  • In addition to most recent quarter end balance sheet company is required to present balance sheet for proceeding fiscal year.
  • Filed within 40 days of quarter end for large accelerated filers
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16
Q

What is recognized for subsequent events?

A
  • Recognize if event existed before balance sheet date. Example litigation ongoing before year end, settled in January recognize realization of assets.
  • Don’t recognize, disclose: if arose after balance sheet date before issue.
  • If entity is not SEC filer disclose subsequent event evaluation date.
  • Disclose only required if the financial statements includes notes.
17
Q

What are the disclosures about major customers?

A

Must disclose total revenue from each single customer that amounts to 10% or more of entities revenue and identify the segment. Customer name does not need to be disclosed.

18
Q

What are entity wide disclosures?

A

If these are not clarified by segment reporting, must be disclosed:

  • external revenue for products and services
  • external revenue based on geographic area
  • long lived assets based on geographic (foreign or domestic )
  • major customers more than 10% of revenue
19
Q

What are the disclosures for reportable segments?

A
  • Factors used to identify operating segments
  • general information about products and services of operating segment
  • segment profit or loss
  • segment revenues
  • segment assets
  • interest, revenue, and expense
  • depreciation, depletion, and Amortization
20
Q

What are the rules for a first time adopter of IFRS?

A
  • Full retrospective application of all IFRS standards.
  • All adjustments should be recognized directly in retained earnings, or if appropriate, another category of equity.
  • Date of transition is the first reporting period that an entity produces full *comparative* F/S using IFRS. i.e. 12/31/2015 F/S, then date of transition is 01/01/14
21
Q

How are unusual or infrequent items reported?

A

Two reporting options :

1) Income Statement - Above Income from Continuing Operations
2) Footnotes to Financial Statements No longer reported as extraordinary-and not net of tax

22
Q

How are discontinued operations reported on the income statement?

A

Net of taxes.

Results of operations and gain/loss on disposal are reported as separate lines

23
Q

What are the four concentration risks and when do they need to be disclosed?

A
  • Volume of business with particular customer, supplier, lender, grantor or contributor (credit risk)
  • Revenue from specific products, services, or other sources.
  • Specific sources( suppliers) of services, materials, labor, licenses, or other rights used in operations.
  • Marget or geographic areas of operations

Need to be disclosed:

  • Concentration exists at B/S date
  • Entity is vunerable due to risk of severe impact
  • It is reasonably possible that events causing severe impact would occur
24
Q

What are the different types of risk?

A
  • Market risk is what happens when there is a substantial change in the particular marketplace in which a company competes.
  • Credit risk is when companies give their customers a line of credit; also, a company’s risk of not having enough funds to pay its bills.
  • Liquidity risk refers to how easily a company can convert its assets into cash if it needs funds; it also refers to its daily cash flow.
  • Operational risks emerge as a result of a company’s regular business activities and include fraud, lawsuits, and personnel issues.
25
Q

What is can be done if Full and fair disclosure is not provided in SEC registration statement?

A
  • It is issuer’s responsibility to provide full and fair disclosure
  • If all material facts are not adequately disclosed, SEC will require the registration statement to be corrected by amendment
  • If amendment does not resolve the deficiencies, SEC may exercise “stop order” powers to prevent securities from being sold (even if some stocks have already been sold)
26
Q

What is disclosed for related party transactions?

A
  • material-related party transactions other than
  • (1) compensation arrangements,
  • (2) expense allowances,
  • (3) other similar items in the ordinary course of business, and
  • (4) transactions that are eliminated in the preparation of consolidated or combined financial statements
  • THiNK : Officer loans, NOT regular salaries or intercompany sales
27
Q

What are the different classifications of expenses in income from continuing operations?

A
  • Inventory Costs
    • Purchase price, freight IN
  • Selling expense
    • freight OUT, salaries and commissions, advertising
  • General and Admin
    • officer’s salaries, accounting and legal, insurance
  • Nonoperating
    • Auxillary activities, interest expense
  • Other, gains / losses
28
Q

When personal financial statements are preared, what is the report called which is intended to communicate economic resources or obligations on a specific date?

A

Statement of Financial Condition

29
Q

What costs are capitalized as part of a new revenue contract?

A
  • Fulfillment costs - costs that are necessary to carry out the contract
    • material, direct labor, overhead
  • incremental costs of obtaining contract - Upfront costs - amortize over life of contract
    • Sales commission , legal fees to draft contract
    • Do NOT capitalize bidding costs, or any costs before you were certain you were going to get contract
30
Q

What are some indications that revenue is recognized at point in time?

A
  • Point in time: Department Store
    • Entity has right to payment
    • Customer has legal title
    • entity has transferred physical possession
    • customer has significant risks and rewards of ownership
    • customer has accepted the asset
31
Q

What are some indications that revenue is recognized over time?

A

Over time :

  • entity creates an asset the customer _controls (_Annual services)
  • the customer receives and consumes the benefits as the entity performs it (subscription)
  • The entity does not create an asset with alternative use to the entity (custom inventory )
  • Entity must be able to measure progress - input or output method
32
Q

Which SEC act required filing of periodic reports with the SEC?

A

Security Exchange Act of 1934

Established filing of 10K, 10Q, and 8-K

33
Q

What are some of the guidelines and bulletins issued by SEC?

FRR , SAB, AAER and concept releases

A
  • FRR - financial reporting release - accounting principals to be followed by registrants (codified into the FRP Financial Reporting Policies)
  • SAB - Staff accounting bulletins - SEC dissemination and administrative intrepretation of reviewing financial information in SEC filings
  • AAER - Accouting and Auditing Enforcement Releases - communicate enforcement actions involving accounting
  • Concept releases - published to solicit public feedback on securities issues
34
Q
A
35
Q

When is a contract modified or accounted for as a separate contract?

A
  • If products are distinct from the original contract AND the pricing is appropriate stand alone pricing, then it is a seperate contract.
  • If not, is a contract modification
    • Blended pricing - how many are left to deliver and how many are in the new modification. Average the price over the remaining products.

FAR - Fact Nuggets (17 decks)

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