ch 10

The management's statement of responsibility explains that the responsibility for the financial statements lies with the external auditor, who expresses an opinion about the financial statements of the company.

False

Copies of public documents filed by publicly traded corporations can be obtained either from the corporation or from the SEC, including the most recent:

Form 10-K registration statement prospectus proxy statement

Identify the correct statements about notes that are an integral part of the financial statements.

They contain important disclosures that are not contained in the financial statements themselves. They help users of the financial statements to make informed decisions and judgments.

True or false: The notes are integral part of the financial statement because it contains disclosures that are not contained in the financial statements themselves.

True

Identify the situations where an auditor can issue a qualified opinion on a company's financial statements.

When the scope of audit is restricted because of which the auditor is not able to perform an essential audit work When there is a material deviation from generally accepted accounting principles that affects only a part of the financial statements

Corporate governance encompasses:

a set of structures, control mechanisms, rules, and regulations that all directors, officers, and employees must follow. issues concerning full and fair disclosure and the equitable treatment of stakeholders.

While performing audit of an entity's financial statements, the auditor finds that the financial statements are misrepresented, misstated, and do not present fairly in all material respects the financial position and results of operations of the reporting entity. In such a scenario, the auditor will issue a(n) _____.

adverse opinion

Most corporate annual reports present a summary of financial data for at least five years; items frequently included in the summary include:

book value per share of common stock property, plant, and equipment (net) long-term debt

Reports issued by accounting firms that clearly communicate to the user that the firms are not providing any form of assurance about the fairness of the financial statements are called (review/compilation/audit) reports.

compilation

During a particular year, if a firm acts as a guarantor of the indebtedness of another entity, the firm that is acting as the guarantor needs to disclose this information under the ground of _____.

contingencies and commitments

Most corporate annual reports present a summary of financial data for at least five years; items frequently included in the summary include:

earnings per share working capital at year end average stockholders' equity

The Sarbanes-Oxley (SOX) Act of 2002 prohibited accounting firms from performing certain specific nonaudit services to their audit clients, including:

financial information systems design and implementation internal auditing services "expert" services

Segment disclosures for publicly traded companies are generally required for:

geographic territories. lines of business. major customers.

Some of the significant policies that are frequently described in the notes to the financial statements of publicly traded companies include details concerning:

income taxes. goodwill and acquisition-related intangibles. inventory valuation methods. stock option and stock purchase plans. employee benefit (pension and postretirement) plans. earnings per share of common stock. basis of consolidation. depreciation methods.

Examples of subsequent events that frequently have a material impact on the balance sheet or income statement and thus should be described in the notes to the financial statements include the:

issuance of a large amount of capital stock. agreement to enter into a business combination. restructuring of long-term debt.

Examples of subsequent events that frequently have a material impact on the balance sheet or income statement and thus should be described in the notes to the financial statements include the:

issuance of a large amount of long-term debt. issuance of a large amount of capital stock sale of a significant part of the company's assets.

When a company's financial report consists of immaterial misstatements or adjustments made in normal course of business, the company is required to simply revise the financial statements and notes that were previously filed with the Securities and Exchange Commission, and such revision is called a _____.

little r restatement

For geographic and "lines of business" segment disclosures, the five required data items shown for each segment are:

operating profit sales to unaffiliated customers capital expenditures depreciation and amortization expense identifiable assets

The (introductory/scope/opinion)paragraph describes the nature and extent of the auditors' work and refers to the need to obtain reasonable assurance about whether the financial statements are free of material misstatement.

scope

An accounting firm provides a compilation report _____.

to clearly communicate to the user that the firm is not providing any form of assurance about the fairness of the financial statements

The Sarbanes-Oxley (SOX) Act of 2002:

was aimed primarily to curtail the misbehavior of senior management of corporate entities. created the Public Company Accounting Oversight Board (PCAOB). requires CEOs and CFOs to attest (in front of a notary) to the correctness of their company's financial statements.

Identify the scenarios that describe contingencies and commitments that need to be disclosed in the annual report.

A potential loss that can arise from a pending lawsuit A commitment made to another entity to take an equipment on lease for several years into the future

The (introductory/scope/opinion) paragraph normally uses language such as "present fairly, in all material respects" and "in conformity with U.S. generally accepted accounting principles."

Opinion

When a company's financial report consists of material errors, it is required to completely reissue the full set of financial statements and related note disclosures that were previously filed with the Securities and Exchange Commission, and such reissue is called a _____.

Big R restatement

Many firms include in the notes management's statement of (ethics/responsibility/accountability), which explains that the responsibility for the financial statements lies with the management of the firm, not the (internal/external/bank) auditor and certified public accountants who express an opinion about the (fairness/accuracy/precision) with which the financial statements present the financial condition and results of operations of the company. Listen to the complete question

Blank 1: responsibility Blank 2: external Blank 3: fairness

Stockholders who do not expect to attend the AGM are invited to return a (prospectus/tender/proxy), which gives another person (usually a director of the corporation) the right to vote the stockholder's shares in accordance with their wishes.

Proxy

The (introductory/scope/opinion) paragraph identifies the financial statements that were audited and briefly describes the responsibilities of both management and the auditors with respect to the financial statements.

Introductory

Identify a true statement regarding management's discussion and analysis (MD&A) provided in a company's annual report.

It discloses non-GAAP financial measures and key performance indicators used to assess the company's financial and operating results.

Identify the section of an annual report where the reporting entity discloses the non-GAAP financial measures and key performance indicators used to assess the entity's financial and operating results.

Management's discussion and analysis