Financial Reporting and Analysis Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Reporting and Analysis flashcards as text
Under IFRS, which of the following is NOT a required component of a complete set of financial statements?
Answer: Statement of retained earnings
IFRS requires a statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes — a standalone statement of retained earnings is not required.
A company uses the LIFO inventory method. During a period of rising prices, compared to FIFO, LIFO will result in:
Answer: Lower net income and lower inventory on the balance sheet
Under rising prices, LIFO assigns higher-cost inventory to COGS, reducing net income, and retains older, lower-cost inventory on the balance sheet.
Which depreciation method results in the highest depreciation expense in the early years of an asset's life?
Answer: Double-declining balance
The double-declining balance method applies a fixed rate to the declining book value, generating the highest depreciation charge in the earliest years.
Under the accrual basis of accounting, revenue is recognized when:
Answer: The performance obligation is satisfied
Under IFRS 15 and ASC 606, revenue is recognized when (or as) the entity satisfies a performance obligation by transferring control of a promised good or service.
An analyst notices that a company's receivables turnover ratio has declined significantly over the past year. This most likely indicates:
Answer: Customers are taking longer to pay their invoices
A declining receivables turnover ratio means accounts receivable are growing relative to sales, suggesting customers are taking longer to pay.
Which of the following is classified as a financing activity in the statement of cash flows under U.S. GAAP?
Answer: Payment of dividends to shareholders
Under U.S. GAAP, dividends paid to shareholders are classified as financing activities because they represent returns to capital providers.
A company reports a lower effective tax rate than its statutory tax rate. This difference is most likely caused by:
Answer: Tax credits or tax-exempt income reducing the tax burden
Tax credits and tax-exempt income permanently reduce taxes owed below the statutory rate, lowering the effective tax rate without creating deferred tax items.