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Study Session 9: Financial Reporting and Analysis: Financial Reporting Quality and Financial Statement Analysis

Revaluation model

Hi guys, just to check is it correct that under the revaluation model, it’s permitted for an asset to revalued about historical cost? I.e. If the historical cost is £100,000 and it is revalued to £2.5m

FRA - Red flags

Q Which of the following will most likely result in lower financial reporting quality?
A Engaging in fraudulent financial reporting.
B A low allowance for uncollectable accounts receivables.
C Selecting alternatives within accepted accounting principles that distort results to achieve a desired outcome.
 
According to the readings, C is straightforward. But why cannot B also cause lower financial reporting quality? And fraudulent reporting is lower quality indeed??

threats to financial stability / profitability

Why is “rapid growth / unusual profitability” a threat to financial profitability forcing the management to resort to manipulation? Is it the pressure to maintain the levels?

Question About Finance Leases

So in the Schweser book it says (pg. 270 of FRA book): “Most importantly, leverage ratios, such as the debt-to-assets ratio and the debt-to-equity ratio, will be higher with finance leases than with operating leases because of the reported liability.”

The days sales payable

Hi all,

the below doesnt make any sense even with the suggested answer. Would appreciate if you could help to explain how the 24% is derived. 

Many thanks

If a firm’s annual days sales in payables (DSP) was 60 days, and the annual cost of goods sold is expected to increase by 22% (and the number of days remain constant), which of the following changes in the end-of-period accounts payable balance will most likely improve (increase) the operating cash flow?

A 24% decrease. B 20% increase. C 24% increase

Income tax payable, expense & paid

A company’s taxable income is the basis for income tax payable (ITPL), which appears on company’s balance sheet (B/s).

A company’s income tax expense (ITE) appears in the income statement,(I/s) and ITE= ITPL +- DTL/DTA.

ITPD - Income tax paid (the actual cash outflow) reduces the income tax payable, which is carried on in the B/s as liability

Shocks

CFA Mock

hi i am currently studying from the schweser notes and have just completed my first reading in last 20 days and 

i have started solving the subject based mocks from the scheweser CD, range of my score (2 hr test of 60 questions each)

fra 60%

quant 70%

economics 60%

Analyst adjustment for Investment

Hello everyone,

Please help me to understand why mangement cant do classification of investment accounted for under the equity method and investment in consolidated subsidiaries?

Thanks

Exercising Option

Hello Everyone,

Exactly what all transactions take place when employee exercise stock options?

And companies get tax exemtion because that already had been considered as expense when granted to employee?

Thanks


Relation between Inventory and Sale

Hello Everyone,

As per my understanding : “If Inventory is increasing then current asset is increasing and CFI is decreasing and if sale is increasing then inventory is decresing and CFO is increasing”.

Please correct me in case above statement does not make sense and also help me to undestandand the dependancy/linkage/relation of sale and inventory.

Thanks