An analyst wants to compare the cash flows of two U.S. companies, one that reports cash flow using the direct method and one that reports it using the indirect method. The analyst is most likely to:
A. Convert the indirect statement to the direct method to compare the firms cash expenditures.
B. Adjust the reported CFO of the firm that reports under the direct method for depreciation and amortization expense.
C. Increase CFI for any dividends reported as investing cash flows by the firm reporting cash flow by the direct method.
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Accounting fraud risk factors related to attitudes and rationalizations are least likely to include:
A. Management has a strained relationship with the current or previous auditor.
B. The firm does not effectively communicate an appropriate set of ethical standards.
C. A high proportion of managements compensation depends on the firm exceeding targets for earnings or the stock price.
The fundamental qualitative characteristics of financial statements as described by the IASB conceptual framework least likely include:
A. relevance.
B. reliability.
C. Faithful representation.
Under U.S. GAAP, firms are required to capitalize:
Any asset with a useful economic life of more than one year.
B. Interest paid on loans to finance construction of a long-lived asset.
C. Research and development costs for a drug that will almost certainly provide a revenue stream of five years or more.
Which of the following is an analyst least likely to be able to find on or calculate from either a common-size income statement or a common-size balance sheet？
A. Inventory turnover.
B. Operating profit margin.
C. Debt to equity ratio.
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