Question 1

What type of audit report indicates that the financial statements have been presented fairly?

Accepted Answer

A)  An unqualified report. 
B)  A disclaimer of opinion. 
C)  A qualified report. 
D)  An adverse opinion. 
A)  An unqualified report. 
B)  A disclaimer of opinion. 
C)  A qualified report. 
D)  An adverse opinion. A

Question 2

What does Section 404 of the Sarbanes-Oxley Act of 2002 require?

Accepted Answer

A)  The external auditors must create an adequate internal control structure for the firm being audited. 
B)  The external auditors must approve of all internal auditors hired by a firm. 
C)  The inclusion of an internal control report in the annual report. 
D)  The external auditors need to perform internal audit services. 
A)  The external auditors must create an adequate internal control structure for the firm being audited. 
B)  The external auditors must approve of all internal auditors hired by a firm. 
C)  The inclusion of an internal control report in the annual report. 
D)  The external auditors need to perform internal audit services. C

Question 3

Which of the following statements is true?

Accepted Answer

A)  GAAP-based financial statements are prepared according to the "cash" rather than the "accrual" basis of accounting. 
B)  Accounting choices and estimates can have a significant impact on the outcome of financial statement numbers. 
C)  The accrual method means that the expense is recognized after the cash is paid out. 
D)  The purpose of the accrual method is to attempt to "match" assets with liabilities in appropriate accounting periods. 
A)  GAAP-based financial statements are prepared according to the "cash" rather than the "accrual" basis of accounting. 
B)  Accounting choices and estimates can have a significant impact on the outcome of financial statement numbers. 
C)  The accrual method means that the expense is recognized after the cash is paid out. 
D)  The purpose of the accrual method is to attempt to "match" assets with liabilities in appropriate accounting periods. B

Question 4

In what industries would it be expected that companies would spend a significant amount on research and development activities?

Accepted Answer

A)  Health. 
B)  Clothes retailer. 
C)  Auto. 
D)  Both (a) and (c). 
A)  Health. 
B)  Clothes retailer. 
C)  Auto. 
D)  Both (a) and (c).

Question 5

The management discussion and analysis is of potential interest to the analyst because it contains information that cannot be found in the financial data.

Accepted Answer

A) True 
 B)False

Question 6

What basic financial statements can be found in a corporate annual report?

Accepted Answer

A)  Balance sheet, income statement, statement of shareholders' equity, and statement of cash flows. 
B)  Balance sheet, auditor's report and income statement. 
C)  Earnings statement and statement of retained earnings. 
D)  Statement of cash flows and five-year summary of key financial data. 
A)  Balance sheet, income statement, statement of shareholders' equity, and statement of cash flows. 
B)  Balance sheet, auditor's report and income statement. 
C)  Earnings statement and statement of retained earnings. 
D)  Statement of cash flows and five-year summary of key financial data.

Question 7

What information can be found on a balance sheet?

Accepted Answer

A)  Information to support that assets equal liabilities. 
B)  The profit or loss for the accounting period. 
C)  The reasons for changes in the cash account. 
D)  The financial position on a particular date; i.e. assets, liabilities and shareholders' equity. 
A)  Information to support that assets equal liabilities. 
B)  The profit or loss for the accounting period. 
C)  The reasons for changes in the cash account. 
D)  The financial position on a particular date; i.e. assets, liabilities and shareholders' equity.

Question 8

Why does the management discussion and analysis help the analyst?

Accepted Answer

A)  It contains information that cannot be found in the financial data. 
B)  It provides predictions of all future financial statement numbers. 
C)  It outlines the accounting choices made by the firm. 
D)  It explains the market valuation of the firm's stock. 
A)  It contains information that cannot be found in the financial data. 
B)  It provides predictions of all future financial statement numbers. 
C)  It outlines the accounting choices made by the firm. 
D)  It explains the market valuation of the firm's stock.

Question 9

The Sarbanes-Oxley Act of 2002 requires all members of management as well as directors to certify the accuracy of the financial statements.

Accepted Answer

A) True 
 B)False

Question 10

The management discussion and analysis should contain a discussion of the commitments for capital expenditures, the purpose of such commitments, and expected sources of funding.

Accepted Answer

A) True 
 B)False

Question 11

Which report is not required to be filed by public companies to the SEC?

Accepted Answer

A)  Annual reports (Form 10-K). 
B)  Financial Reporting Rulings. 
C)  A prospectus for any new security offering. 
D)  Quarterly reports (From 10-Q). 
A)  Annual reports (Form 10-K). 
B)  Financial Reporting Rulings. 
C)  A prospectus for any new security offering. 
D)  Quarterly reports (From 10-Q).

Question 12

Financial statements are currently prepared according to generally accepted accounting principles in the U.S.

Accepted Answer

A) True 
 B)False

Question 13

The SEC requires all companies, both public and private, to file annually a Form 10-K report.

Accepted Answer

A) True 
 B)False

Question 14

How are revenues and expenses recognized under the accrual basis of accounting?

Accepted Answer

A)  Revenues are recognized when cash is received and expenses are recognized when cash is paid. 
B)  Revenues and expenses are recognized equally over a twelve month period. 
C)  Revenues and expenses are recognized based on the choices of management. 
D)  Revenues are recognized in the accounting period when the sale is made and expenses are recognized in the period in which they relate to the sale of the product. 
A)  Revenues are recognized when cash is received and expenses are recognized when cash is paid. 
B)  Revenues and expenses are recognized equally over a twelve month period. 
C)  Revenues and expenses are recognized based on the choices of management. 
D)  Revenues are recognized in the accounting period when the sale is made and expenses are recognized in the period in which they relate to the sale of the product.

Question 15

A corporate annual report contains three basic financial statements.

Accepted Answer

A) True 
 B)False

Question 16

Examples of discretionary items include repairs and maintenance, research and development and advertising.

Accepted Answer

A) True 
 B)False

Question 17

The matching principle requires that expenses be matched with the generation of revenues in order to determine net income for an accounting period.

Accepted Answer

A) True 
 B)False

Question 18

What types of information cannot be found in the financial statements?

Accepted Answer

A)  Details about officer and employee retirement, pension, and stock option plans. 
B)  Pending legal proceedings. 
C)  Reputation of the firm, morale of employees and prestige in the community. 
D)  Disclosures about segments of an enterprise. 
A)  Details about officer and employee retirement, pension, and stock option plans. 
B)  Pending legal proceedings. 
C)  Reputation of the firm, morale of employees and prestige in the community. 
D)  Disclosures about segments of an enterprise.

Question 19

The proxy statement offers information about such items as corporate governance, audit-related matters, directors and executive compensation, and related party transactions.

Accepted Answer

A) True 
 B)False

Question 20

United States accounting rules have been perceived as being less complex than international standards.

Accepted Answer

A) True 
 B)False

What type of audit report indicates that the financial statements have been presented fairly?

What does Section 404 of the Sarbanes-Oxley Act of 2002 require?

Which of the following statements is true?

In what industries would it be expected that companies would spend a significant amount on research and development activities?

The management discussion and analysis is of potential interest to the analyst because it contains information that cannot be found in the financial data.

What basic financial statements can be found in a corporate annual report?

What information can be found on a balance sheet?

Why does the management discussion and analysis help the analyst?

The Sarbanes-Oxley Act of 2002 requires all members of management as well as directors to certify the accuracy of the financial statements.

The management discussion and analysis should contain a discussion of the commitments for capital expenditures, the purpose of such commitments, and expected sources of funding.

Which report is not required to be filed by public companies to the SEC?

Financial statements are currently prepared according to generally accepted accounting principles in the U.S.

The SEC requires all companies, both public and private, to file annually a Form 10-K report.

How are revenues and expenses recognized under the accrual basis of accounting?

A corporate annual report contains three basic financial statements.

Examples of discretionary items include repairs and maintenance, research and development and advertising.

The matching principle requires that expenses be matched with the generation of revenues in order to determine net income for an accounting period.

What types of information cannot be found in the financial statements?

The proxy statement offers information about such items as corporate governance, audit-related matters, directors and executive compensation, and related party transactions.

United States accounting rules have been perceived as being less complex than international standards.

The Balance Sheet

Income Statement and Statement of Stockholders Equity

Statement of Cash Flows

The Analysis of Financial Statements

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Exam 1: Financial Statements: an Overview

What type of audit report indicates that the financial statements have been presented fairly?

What does Section 404 of the Sarbanes-Oxley Act of 2002 require?

Which of the following statements is true?

In what industries would it be expected that companies would spend a significant amount on research and development activities?

The management discussion and analysis is of potential interest to the analyst because it contains information that cannot be found in the financial data.

What basic financial statements can be found in a corporate annual report?

What information can be found on a balance sheet?

Why does the management discussion and analysis help the analyst?

The Sarbanes-Oxley Act of 2002 requires all members of management as well as directors to certify the accuracy of the financial statements.

The management discussion and analysis should contain a discussion of the commitments for capital expenditures, the purpose of such commitments, and expected sources of funding.

Which report is not required to be filed by public companies to the SEC?

Financial statements are currently prepared according to generally accepted accounting principles in the U.S.

The SEC requires all companies, both public and private, to file annually a Form 10-K report.

How are revenues and expenses recognized under the accrual basis of accounting?

A corporate annual report contains three basic financial statements.

Examples of discretionary items include repairs and maintenance, research and development and advertising.

The matching principle requires that expenses be matched with the generation of revenues in order to determine net income for an accounting period.

What types of information cannot be found in the financial statements?

The proxy statement offers information about such items as corporate governance, audit-related matters, directors and executive compensation, and related party transactions.

United States accounting rules have been perceived as being less complex than international standards.

The Balance Sheet

Income Statement and Statement of Stockholders Equity

Statement of Cash Flows

The Analysis of Financial Statements

Filters