Financial Reporting and Analysis: Evaluating Financial Reporting Quality and Other Applications

Question 1

Reporting Quality: Motivation: Over/Under Report Earnings

Answer 1

Question 2

Reporting Quality: Motivations: Manipulation of B/S

Answer 2

Question 3

Reporting Quality: Signs of Low Quality Earnings

Answer 3

Question 4

Reporting Quality: The Fraud Triangle

Answer 4

Question 5

Reporting Quality: Risk Factors: Economic, Industry, or Entity Operating Conditions

Answer 5

Question 6

Reporting Quality: Risk Factors: Pressure on Management

Answer 6

Question 7

Reporting Quality: Risk Factors: Directors’ financial position threatened

Answer 7

Question 8

Reporting Quality: Risk Factors: Nature of entity/industry’s operations

Answer 8

Question 9

Reporting Quality: Risk Factors: Ineffective monitoring of management

Answer 9

Question 10

Reporting Quality: Risk Factors: Complex or unstable organizational structure

Answer 10

Question 11

Reporting Quality: Risk Factors: Insufficient Internal Controls

Answer 11

Question 12

Reporting Quality: Risk Factors: Rationalization

Answer 12

Question 13

Reporting Quality: SEC Improper Practice

Answer 13

Question 14

Reporting Quality: Warning Signs: revenue recognition

Answer 14

Question 15

Reporting Quality: Warning Signs: Divergence of CFO and earnings, revenue

Answer 15

Question 16

Reporting Quality: Warning signs: Inventory and non-recurring/operating items

Answer 16

Question 17

Reporting Quality: Warning signs: expenses, operating leases, losses and expenses

Answer 17

Question 18

Reporting Quality: Warning signs: LIFO liquidation, margins

Answer 18

Question 19

Reporting Quality: Warning signs: Useful economic lives, Pension

Answer 19

Question 20

Reporting Quality: Warning signs: Earnings surprises, Equity, Financing

Answer 20

Question 21

Accounting Shenanigans: Cash Flow Measurement

Answer 21

Question 22

Accounting Shenanigans: Motivations for Creative CF Reporting

Answer 22

Question 23

Accounting Shenanigans: Stretching Out Payables

Answer 23

Question 24

Accounting Shenanigans: Financing of Payables

Answer 24

Question 25

Accounting Shenanigans: Securitization of Receivables

Answer 25

Question 26

Accounting Shenanigans: Tax Benefits From Stock Options

Answer 26

Question 27

Accounting Shenanigans: Buybacks to Offset Dilution

Answer 27

Question 28

FSA - Applications: Evaluating Past Financial Performance

Answer 28

Question 29

FSA - Applications: Projecting Performance

Answer 29

Question 30

FSA - Applications: Forecasting Net Income and Cash Flow

Answer 30

Question 31

FSA - Applications: Financial Forecasting Example

Answer 31

Question 32

FSA - Applications: Credit Risk

Answer 32

Question 33

FSA - Applications: Credit Scoring

Answer 33

Question 34

FSA - Applications: Equity Investment Screening

Answer 34

Question 35

FSA - Applications: Analyst Adjustments: Investments

Answer 35

• Adjust financial statements for differences in accounting choices (e.g., LIFO/FIFO, accelerated/straight line depreciation, revenue recognition criteria)
• Adjust financial statements for differences in accounting standards (e.g., IFRS vs. U.S. GAAP)

Question 36

FSA - Applications: Analyst Adjustments: Inventory, PP&E, Goodwill

Answer 36

Question 37

FSA - Applications: Analyst Adjustments: Off-balance-sheet finance

Answer 37