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Financial Reporting and Analysis Flashcards

1
Q

compute gross profit

A

revenue less cost of goods

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2
Q

compute operating profit

A

gross profit less operating expenses

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3
Q

What is included in the statement of comprehensive income

A

The traditional statement of operations and other comprehensive income (OCI)

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4
Q

Which Statement is responsible for reporting a company’s financial position?

A

Balance Sheet

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5
Q

Name the 6 phases of the financial statement analysis framework

A
  1. articulate the purpose and context of the analysis
  2. Collecting Data
  3. Process the Data
  4. Analyzing and interpreting the processed data
  5. develop and communicate conclusions and recommendations
  6. follow up
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6
Q

What is the purpose of common-size financial statements?

A

to express the financial statements in terms of percentages (of net sales or of total assets for example)

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7
Q

What is included in the OCI?

A

Fair value changes, items reclassified to profit and loss, and other non-owner changes in equity

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8
Q

What are the two major components of the Statement of Changes to Equity?

A

Paid-in Capital + retained Earnings

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9
Q

Summarize the Statement of changes in equity

A

Beginning equity +/- increases/decreases in paid-in capital + net income (or minus net loss) - dividends paid +/- changes in other comprehensive income +/- changes in minority interests.

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10
Q

What sort of info will you find in the financial notes and supplementary schedules

A

info about the company’s accounting policies, methods, and estimates

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11
Q

What is a company’s ability to pay its long-term obligations referred to as?

A

Solvency

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12
Q

A company’s ability to pay its short-term obligations?

A

liquidity

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13
Q

how is the Cash Flow statement broken down?

A

Operating activities, Investment activities, financing activities, and supplemental activities

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14
Q

What is the indirect method of cash flow statement preparation?

A

Starting with net income and adjusting it to cash flow; for example, start with net income, then add depreciation and/or subtract accounts receivables

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15
Q

What is included in the Investing activities section of the cash flow statement?

A

the purchase and sale of fixed assets

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16
Q

What is a MD&A statement and what is its purpose?

A

Management Discussion and Analysis; Its purpose is to provide readers with info needed to understand a company’s financial condition, changes in financial condition, and results of operations

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17
Q

What are the 5 recommended elements of an MD&A by IASB?

A
  1. the nature of the business
  2. management’s objectives and strategies
  3. the company’s significant resources, risks, and relationships
  4. results of operations
  5. critical performance measures
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18
Q

Describe the basic format of the Auditor’s Report

A

3 Paragraphs:

  1. Introductory Paragraph - statements to be audited and responsibility of mngt + auditors
  2. Scope Paragraph - describes audit process and procedures used for opinion
  3. Opinion Paragraph - are the statements fairly presented or no?
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19
Q

What are the types of an opinion that an auditor may issue?

A

> Unqualified Opinion
Qualified Opinion
Adverse Opinion
Disclaimer of Opinon

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20
Q

The opinion rendered when an auditor found no material misstatement and believes that the statements fairly reflect the results of operations and financial condition of the company

A

An Unqualified Opinion

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21
Q

The opinion rendered by an auditor who finds something material that does not comply with the applicable accounting standards, but does not go as far as invalidating the statements as a whole.

A

A Qualified Opinion

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22
Q

The opinion rendered by an auditor who found material misstatements of such an extent that the statements taken as a whole do not fairly represent the results of operations and financial conditions in compliance with the applicable accounting standards.

A

An Adverse Opinion

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23
Q

Opinion rendered by an auditor when he or she can not complete the audit as he or she feels it should be conducted

A

Disclaimer of Opinion

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24
Q

Which act most likely requires an auditor to express an opinion on the internal controls of a company?

A

Sarbanes-Oxley Act

25
Which general accounting rules are used by European companies?
IFRS
26
Who issues the Objective and Principles of Securities Regulations?
The International Organization of Securities Commissions (IOSCO)
27
What are the main objectives of Objective and Principles of Securities Regulations
regulating more than 90% of the world's financial markets, the main objectives are to protect investors, ensure markets are fair, efficient, and transparent, and to reduce systemic risk.
28
What is the FASB and who grants it authority?
Financial Accounting Standards Board; The SEC
29
in 2002, Both the IASB and FASB issued a memo that was a huge milestone in their efforts to consolidate financial accounting standards; what is this agreement known as?
The Norwalk agreement.
30
What Law created the SEC?
Securities Act of 1934
31
Which Law regulates the audit industry and holds CEOs and CFOs personally responsible for financial reporting, and highlights the importance of internal control systems?
Sarbanes-Oxley Act of 2002
32
What is filed on the Form 10-K?
Company's audited financial statements and disclosures, along with the management discussion and analysis, risk assessment, and legal information
33
What is the Foreign equivalents to the 10-K?
Form 40-F (Canada) | Form 20-F (all other non-US)
34
What is filed on the Annual Report
Not a requirement by SEC; it is generally a "dressed up" version of the 10-K
35
What is filed on Form DEF-14A?
aka Proxy Statement; this report contains info about the annual shareholder meeting, including proposals, director executive info, and share ownership; the proxy gives another person the right to vote on behalf of the shareholder and its required to be voted on prior to the annual meeting
36
What is reported on form 10-Q?
Quarterly financial reports; (form 6-K) for international filers)
37
If a company offers new shares, what disclosure must it provide?
The Securities Offerings Registration Statement; also, similar info as 10-K
38
What does Form 144 do?
Informs the SEC of a proposed sale of restricted securities
39
What does Form 11-K disclose?
annual info about the employee stock plans
40
International Account Standard #1 : Presentation of Financial Statements requires what statements
balance sheet (a classified statement of financial position), a statement of comprehensive income, a statement of equity, a statement of cash flows, and financial statement notes
41
Define current cost
aka "replacement cost;" is the amount needed to purchase an identical asset or settle the liability right now
42
The value assigned from selling or liquidating an asset or liability to a third party that is not the fair market
Realizable value, or settlement value
43
typical discounting based on the estimated cash flows the asset will produce or what payments are required to satisfy the liability
Present Value
44
an accounting term for a company that is financially stable enough to meet its obligations and continue its business for the foreseeable future
Going concern
45
Which Accounting Standards allow LIFO inventory accounting?
GAAP
46
which Accounting Standards allows some items, such as unusual gains and losses, to bypass the income statement and flow directly to the statement of owner's equity in a statement of comprehensive income?
IFRS
47
How can valuations in assets differ between GAAP and IFRS?
GAAP allows recording of all assets (anticipated to provide future economic benefits) at fair value at acquisitions; IFRS requires that assets (resources that should produce economic benefits) provide some future economic benefit to the company to be considered assets
48
In the financial statements, an analyst can find key accounting judgment disclosures in:
Management's discussion and analysis section
49
IFRS or GAAP? - in order for a company to recognize revenue when selling a product, the seller must no longer have any claim on the product, cannot tell the buyer what to do with the product, knows how much it will be paid, and knows how much the goods cost.
IFRS
50
IFRS or GAAP? - in order for a company to recognize revenue, the company will have to have an arrangement with a customer; the product must be delivered, or service rendered; the price is determinable; and the company is sure it will collect its money
GAAP
51
What is the core principle of the new converged standards introduced in 2018?
The core principle of the new standards is that revenue is recognized as goods and services are transferred to customers in a mount that reflects the consideration of the seller expects to receive
52
An asset's time it will be used for generating revenues is referred to as:
it's estimated useful life
53
Name a couple of focal points worth monitoring when analyzing a company's Accounts Receivables
Growth rate of accounts receivables to sales on credit; amount of customers (concentration) included in sales on credit; the change of credit personnel and/or policies
54
What are the two necessary characteristics of an identifiable intangible?
cost can be measured reliably, and is expected to provide future benefits to the company.
55
how is financial instrument defined by IFRS?
a contract that is an asset to one party and a liability or equity to another
56
Name the four items required under IFRS in the Statement of Changes in Equity
1. Total comprehensive Income 2. the effects of any accounting changes that have been retrospectively applied to previous periods 3. Capital transactions with owners and distrubtions to owners 4. the reconciliation of the carrying amounts of each component of equity at the beg and end of the year
57
How do you find: Cash Ratio Quick Ratio (aka acid test ratio) Current Ratio
Cash Ratio = Cash/current liabilities Quick Ratio = Cash and receivables divided by current liabilities; or simply current assets less inventory over current liab's Current Ratio = total current assets/current liabilities
58
What are the different ratios used to measure a company's solvency?
Long-term debt-to-equity ratio; Debt-to-Equity ratio; Total Debt to Total Assets Ratio

Finance (5 decks)

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