Financial Analysis & Reporting Flashcards
7 cards from real CFE 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 Analysis & Reporting flashcards as text
An examiner is reviewing a company's financial statements and finds that goodwill on the balance sheet has remained unchanged for five consecutive years. Which concern should this raise?
Answer: Management may be avoiding required impairment testing or recognizing impairment losses
Under ASC 350, goodwill must be tested for impairment at least annually; an unchanged figure for five years may indicate impairment testing is not being performed properly.
The DuPont analysis decomposes return on equity (ROE) into which three components?
Answer: Net profit margin, asset turnover, and financial leverage
DuPont breaks ROE into net profit margin × asset turnover × equity multiplier (financial leverage), revealing the drivers of shareholder returns.
A company capitalizes an expenditure that should have been expensed. The immediate effect on financial statements is:
Answer: Overstated assets and understated expenses, leading to overstated net income
Improper capitalization inflates assets and defers expense recognition, overstating current-period net income.
When comparing financial statements across companies that use different inventory costing methods, an analyst should use the LIFO reserve to:
Answer: Convert LIFO financials to a FIFO-equivalent basis for comparability
The LIFO reserve is the cumulative difference between LIFO and FIFO costs; adding it back to LIFO inventory converts it to approximate FIFO values for comparability.
Which of the following is most indicative of earnings management through channel stuffing?
Answer: Revenue increasing sharply at period end while receivables grow disproportionately
Channel stuffing artificially inflates period-end revenues by pushing excess product to distributors, causing receivables to spike disproportionately to sales growth.
For a defined-benefit pension plan, which item increases the projected benefit obligation (PBO)?
Answer: Service cost and interest cost
Service cost (benefit earned during the year) and interest cost (unwinding of discount on the obligation) both increase the PBO.
Under IFRS, how are development costs treated when all required criteria are met?
Answer: Capitalized as an intangible asset and amortized
IFRS (IAS 38) requires capitalization of development costs once technical feasibility and other specified criteria are satisfied, unlike U.S. GAAP which generally expenses them.