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Warning signs under Revenue Recognition1. Changes in _______ of
revenue recognition2. Use of ____ and hold transactions3. Use of ______
transactions4. Use of rebate programs that require _______ of the impact
of rebates on net revenue5. Lack of transparency with regards to how
components of customer order are recorded as revenue6. Revenue growth
out of line with _____ companies7. Receivables turnover decreasing over
multiple periods8. Decreases in total asset turnover, especially when a
company is growing t
Compared to straight-line depreciation using an accelerated method of
depreciation _______ expenses and ________ net income in the early years
of an assets life
In US companies that report Non-GAAP measures are required to report1.
Display the most comparable GAAP measure with _____ prominence2.
Provide an ___________ by management as why this measure is useful3.
Reconcile the ___________ between the non-GAAP and the most comparable
GAAP measure4. Disclose other purposes for which the firm uses the
non___ measure5. Include in any non-GAAP measure, any items that are
likely to ____ in the future
Conservative bias can be considered a deviation from _______ reporting
or faithful representation that reduces the usefulness of financial
statements to investors
Other warning signs1. Depreciation methods, estimated asset ______ or
estimated _______ values are out of line with peer companies2. Fourth
quarter earnings show a pattern compared to the seasonality of earnings
in the _______ or seasonality of earnings for the firm3. The firm has
__________ transactions with related parties (entities controlled by
management)4. Certain expenses are classified as nonrecurring but appear
________ in financial reports
In a ___ ___ _____ transaction the customer buys the goods and
receives an invoice but requests the firm keep the good at their
location for a period of time
Other warning signs5. Gross or operating profits are noticeably ______
than are typical for the industry and peers6. Management provides only
_______ financial reporting information and disclosure7. Management
emphasizes ________ earnings measures and uses special or nonrecurring
designations aggressively8. Growth by purchasing a large number of
businesses can provide opportunities to ________ asset values and future
depreciation and amortization
The importance of the level of earnings is that reported earnings must
be high enough to sustain the company's _________ and existence over
time, as well as high enough to provide an adequate ________ to the
company's investors
Larger valuation allowances on deferred tax assets is __________ (aggressive or conservative)
For companies that are highly leveraged and unprofitable, aggressive
accounting may be motivated by a desire to avoid violating debt
__________
While conservative bias in financial reporting is not ideal for users
of financial statements, it may be beneficial in reducing the
probability of future _________ from users claiming they were misled, in
reducing current period ___ liability and in protecting the interests
of those who have ____ complete information than management
Less accrual of reserves for bad debt is __________ (aggressive or conservative)
Enforcement actions by securities regulators may include ______,
__________ for participation in issuance and trading of securities, and
_______ disclosure of the results of disciplinary proceedings.
Regulators may pursue ________ prosecution of fraudulent or otherwise
illegal activity
Warning signs under capitalization policies1. Firm capitalizes costs
that are not typically ________ by firms in their industry
Aggressive accounting often results in _________ earnings in future
periods while conservative accounting will tend to _______ future period
earnings
Early recognition of impairment is __________ (aggressive or conservative)
Sustainability as be evaluated by determining the proportion of
reported earnings that can be expected to ________ in the future
Increasing a valuation allowance will _______ net deferred tax assets and _______ net income
COGS are closer to current cost under the ______ ______ cost method so
that gross profit and margin better reflect economic reality
We describe the choices made within GAAP with respect to reported
earnings as __________ accounting if they tend to decrease the company's
reported earnings and financial position for the period
During periods of decreasing prices gross profit, gross margin and
earnings are ______ under FIFO than under the weighted average method
Firms can manage the timing of revenue recognition by accelerating or delaying the ________ of goods
IFRS require that firms using non IFRS measures are required to
report1. Define and explain the ________ of such non-IFRS measures2.
Reconcile the __________ between the non-IFRS measure and the most
comparable IFRS measure
An increase in the allowance for bad debt would ________ net
receivables on the balance sheet, ________ expenses and ________ net
income
Overloading a distribution channel with more goods than would normally
be sold during a period is referred to as _______ _______
Circumstances in which low-quality financial reporting are more
probable are1. The company has weak _______ controls2. The board of
__________ provides inadequate oversight3. Applicable accounting
standards provide a ______ of acceptable accounting treatments4.
____________ by management for less-than-ethical actions
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