2.1

What are the four financial statements that all public companies must produce?

Answer: 1. balance sheet 2. income statement 3. statement of cash flows 4. statement of stockholdersʹ equity

What is the role of an auditor in financial statement analysis?

Answer: Key points: 1. to ensure that the annual financial statements are prepared accurately 2. to ensure that the annual financial statements are prepared according to Generally Accepted Accounting Principles (GAAP) 3. to verify that the information used in preparing the annual financial statements is reliable

U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form? A) 10-A B) 10-K C) 10-Q D) 10-SEC

B.

The exchanges in which of the following countries or regions do NOT accept the International Financial Reporting Standards set out by the International Accounting Standards Board? A) Germany B) France C) United States D) United Kingdom

C>

Which of the following best describes why a firm produces financial statements? A) to use as a tool when planning future investments within a firm B) to increase the intrinsic value of a firm C) to provide a means for interested outside parties such as creditors to obtain information about a firm, with an overview of the short- and long-term financial condition of a business D) to show the daily activities a firm has undertaken in the previous financial year, and what activities are planned for the near future

C>

The third party who checks annual financial statements to ensure that they are prepared according to Generally Accepted Accounting Principles (GAAP) and verifies that the information reported is reliable is the ________. A) NYSE Enforcement Board B) Accounting Standards Board C) Securities and Exchange Commission (SEC) D) auditor

D.

Which of the following is NOT one of the financial statements that must be produced by a public company? A) the balance sheet B) the income statement C) the statement of cash flows D) the statement of activities

D.

What is the main reason that it is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP) when creating financial statements? A) It ensures that the market value of assets and debt are reported accurately. B) It ensures that information on the performance of public companies is reported on cash-basis accounting. C) It ensures that important budgetary information is not omitted. D) It makes it easier to compare the financial results of different firms.

D>

In the United States, publicly traded companies can choose whether or not they wish to release periodic financial statements.

F.

Financial statements are optional accounting reports issued periodically by a firm which present information on the past performance of the firm, a summary of the firmʹs assets and the financing of those assets, and a prediction of the firmʹs future performance.

F>

International Financial Reporting Standards are taking root throughout the world. However, it is unlikely that the U.S. will report according to IFRS before the second half of the twenty -first century.

F>

Which of the following is NOT a financial statement that every public company is required to produce? A) income statement B) statement of sources and uses of cash C) balance sheet D) statement of stockholdersʹ equity

b