ACCT5312 - Ch10

Reasons for the difference between the statutory income tax rate and the company's effective tax rate may include the effects of: Multiple select question. A. tax benefits associated with export sales. B. non-U.S. income taxed in other countries. C. the company's noncompliance with tax laws. D. state income taxes. E. special treatment given to certain items for tax purposes. F. the statutory tax rate variations in certain industries.

A, B, D & E A. tax benefits associated with export sales. B. non-U.S. income taxed in other countries. D. state income taxes. E. special treatment given to certain items for tax purposes.

The Sarbanes-Oxley (SOX) Act of 2002 prohibited accounting firms from performing certain specific nonaudit services to their audit clients, including: Multiple select question. A. "expert" services B. tax compliance and advisory services C. internal auditing services D. financial information systems design and implementation

A, C & D A. "expert" services C. internal auditing services D. financial information systems design and implementation

Which of these are significant accounting policies that should be included in notes to the financial statements? Multiple select question. A. Basis of consolidation B. Property taxes C. Inventory valuation method D. Depreciation method

A, C & D A. Basis of consolidation C. Inventory valuation method D. Depreciation method

Identify an example of an accounting change that is disclosed in an annual report. A. Shifting the current portion of a long-term debt to the current liabilities B. Changing the cost of inventory when the seller has provided cash discount C. Switching from the straight-line method of depreciation to the declining-balance method of depreciation D. Changing the retained earnings account due to previous year's error discovered in the current year

C. Switching from the straight-line method of depreciation to the declining-balance method of depreciation

Management's statement of responsibility: A. explains that the entity's financial statements are the responsibility of the entity's auditors. B. states that the financial statements are free of significant error. C. affirms that management is responsible for assuring adherence to internal control policies and procedures. D. guarantees that the firm has operated in a highly ethical manner.

C. affirms that management is responsible for assuring adherence to internal control policies and procedures.

The component that is treated as a reduction of net pension expense is: A. interest cost of the projected benefit obligation. B. pension plan benefit payments. C. expected return on plan assets. D. service cost.

C. expected return on plan assets.

The Sarbanes-Oxley Act (SOX) of 2002 does not specifically prohibit an independent auditor from performing the following non-audit function(s) for an audit client: A. financial information systems design and implementation. B. internal audit outsourcing services. C. tax services. D. "expert" services. E. SOX specifically prohibits an independent auditor from performing all of these non-audit services for an audit client.

C. tax services.

Significant accounting policies are described in the notes to the financial statements because: A. there isn't enough space for them to be included in the captions of the financial statements. B. if the accrual basis of accounting is used, "matching" of revenues and expenses may not take place. C. the reader must be aware of which of the alternative generally accepted accounting practices have been used. D. details concerning the reporting entity's accounting information system and data processing methods must be disclosed.

C. the reader must be aware of which of the alternative generally accepted accounting practices have been used.

How did the Sarbanes-Oxley Act of 2002 (SOX) lead to a dramatic decrease in Big R restatements being filed in recent years? Multiple select question. A. The new regulations made it impossible for companies to "cook the books." B. Businesses adopted tighter internal controls. C. Businesses adopted more reliable methods of financial reporting. D. A more effective regulatory environment became the "new normal" in accounting and auditing.

B, C & D B. Businesses adopted tighter internal controls. C. Businesses adopted more reliable methods of financial reporting. D. A more effective regulatory environment became the "new normal" in accounting and auditing.

What led to the passage of the Sarbanes-Oxley Act in 2002?Multiple select question. A. Businesses were being regulated too tightly by government entities. B. Greed and arrogance in the business sector contributed to a stock market boom during the late 1990s. C. Financial accounting and reporting processes were being stretched beyond the limits of general acceptability. D. Certain CEOs, CFOs, auditors, investors, investment bankers, and others were engaging in outright fraud.

B, C & D B. Greed and arrogance in the business sector contributed to a stock market boom during the late 1990s. C. Financial accounting and reporting processes were being stretched beyond the limits of general acceptability. D. Certain CEOs, CFOs, auditors, investors, investment bankers, and others were engaging in outright fraud.

The Sarbanes-Oxley (SOX) Act of 2002: Multiple select question. A. banned the provision of all consulting services performed by companies' independent auditors. B. requires CEOs and CFOs to attest (in front of a notary) to the correctness of their company's financial statements. C. created the Public Company Accounting Oversight Board (PCAOB). D. was aimed primarily to curtail the misbehavior of senior management of corporate entities.

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

Some of the significant policies that are frequently described in the notes to the financial statements of publicly traded companies include details concerning: Multiple select question. A. bad debt estimation techniques. B. basis of consolidation. C. earnings per share of common stock. D. employee benefit (pension and postretirement) plans. E. depreciation methods.

B, C, D & E B. basis of consolidation. C. earnings per share of common stock. D. employee benefit (pension and postretirement) plans. E. depreciation methods.

In an independent auditor's report, what is the topic of the separate page that normally follows the three-paragraph financial statement audit opinion? A. A description of the nature and extent of the work the auditor has completed for the company B. An internal control audit, which addresses the effectiveness of the company's internal control over financial reporting C. An adverse opinion that lists all of the errors and misrepresentations the auditor found in the financial statements D. A guarantee that the financial statements are free from fraudulent transactions and errors

B. An internal control audit, which addresses the effectiveness of the company's internal control over financial reporting

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 _______. A. Big F restatement B. Big R restatement C. little f restatement D. little r restatement

B. Big R restatement

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 as what type of accounting change? A. Events subsequent to the balance sheet date B. Contingencies and commitments C. Segment information D. A business combination

B. Contingencies and commitments

Assume that Mason Inc. reported basic earnings per share and cash dividends per share of $6.00 and $2.10, respectively, for Year 1 and that in Year 2, the firm had a 3-for-1 stock split. In the annual report for Year 2, earnings per share (EPS) and dividends per share (DPS) for Year 1 should be reported as: A. EPS = $6.00 x 3 = $18.00 DPS = $2.10 x 3 = $6.30 B. EPS = $6.00 / 3 = $2.00 DPS = $2.10 / 3 = $0.70 C. EPS = $6.00 (not restated) DPS = $2.10 / 3 = $0.70 D. EPS = $6.00 / 3 = $2.00 DPS = $2.10 (not restated)

B. EPS = $6.00 / 3 = $2.00 DPS = $2.10 / 3 = $0.70

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. A. Management's statement of responsibility B. Management's discussion and analysis C. Notes to financial statements D. Letters of management

B. Management's discussion and analysis

Management's statement of responsibility: A. guarantees that the firm has operated in a highly ethical manner. B. affirms that management is responsible for assuring adherence to internal control policies and procedures. C. explains that the entity's financial statements are the responsibility of the entity's auditors. D. states that the financial statements are free of significant error.

B. affirms that management is responsible for assuring adherence to internal control policies and procedures.

Management's statement of responsibility: A. includes a disclaimer of responsibility for the level of the P/E ratio of the company's common stock. B. refers to the company's system of internal controls. C. emphasizes that the auditors are responsible for the financial statements. D. allows the president of the company to explain why profits changed.

B. refers to the company's system of internal controls.

An accounting firm provides a compilation report ______. A. to indicate that the firm has a substantial doubt about the entity's ability to continue as a going concern B. to clearly communicate to the user that the firm is not providing any form of assurance about the fairness of the financial statements C. when it gives an opinion on the fair presentation of the financial statements of a small business D. when the firm finds that there is a material change from a prior accounting period in the application of an accounting principle

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

Examples of circumstances requiring departures from the standard auditors' report include all of the following except: A. substantial doubt about the entity's ability to continue as a going concern. B. basing the opinion in part on the work of another auditor. C. a material change from a prior accounting period in the application of an accounting principle. D. the inability to verify the company's ownership of an immaterial asset.

D. the inability to verify the company's ownership of an immaterial asset.

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. True or False?

False

The Wall Street Reform and Consumer Protection Act of 2010 is commonly referred to as the Dodd-________ (Oscar/Frank/George) Act.

Frank

The notes are an integral part of the financial statement, because they contain disclosures that are not contained in the financial statements themselves. True or False?

True

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

In addition to expressing an audit opinion on the company's financial statements and related note disclosures, _______(independent/internal) auditors are required to express an opinion on the effectiveness of the company's ________ (external/internal) control systems.

independent internal

In an independent auditor's report, 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

In an independent auditor's report, 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

Stockholders who do not attend the annual general meeting may 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

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.

responsibility external fairness

In an independent auditor's report, 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

If the payment made for the acquisition of net assets is more than the fair value of the net assets, the excess amount is recorded ______. A. as goodwill, and it is evaluated for possible impairment losses B. as loss, and it is deducted from the retained earnings account balance of the acquiring company C. as profit, and it is added to the retained earnings account balance of the acquiring company D. as goodwill, and it is amortized every year using the straight-line method

A. as goodwill, and it is evaluated for possible impairment losses

An audit conducted in accordance with generally accepted auditing standards includes each of the following except: A. evaluation of the efficiency and effectiveness of management. B. planning and performance of the audit to obtain reasonable assurance that the financial statements are free of material misstatements. C. assessment of the accounting principles used and significant estimates made by management. D. examination, on a test basis, of evidence supporting the amounts and disclosures in the financial statements.

A. evaluation of the efficiency and effectiveness of management.

Registered securities can be traded publicly on a stock exchange or in the over-the-counter market. Firms that issue these securities are required to file an annual informational report with the SEC. This report is referred to as Form ______ (10-K/10-40/10-Q).

10-K

Identify the scenarios that describe contingencies and commitments that need to be disclosed in the annual report. Multiple select question. A. A potential loss that might arise from a pending lawsuit B. A situation where the company has agreed to act as a guarantor of the indebtedness of another entity C. A merger that the company has made with another firm D. A decision made to switch from the straight-line to the double-declining balance depreciation method

A & B A. A potential loss that might arise from a pending lawsuit B. A situation where the company has agreed to act as a guarantor of the indebtedness of another entity

Which of these are significant accounting policies that should be included in notes to the financial statements? Multiple select A. Earnings per share of common stock B. Donations to charitable causes C. Stock option and stock purchase plans D. Goodwill and other acquisition-related intangibles

A & C A. Earnings per share of common stock C. Stock option and stock purchase plans

Which of these are significant accounting policies that should be included in notes to the financial statements? Multiple select question. A. Earnings per share of common stock B. Goodwill and other acquisition-related intangibles C. Stock option and stock purchase plans D. Donations to charitable causes

A & C A. Earnings per share of common stock C. Stock option and stock purchase plans

Common examples of accounting changes include: Multiple select question. A. switching from the FIFO to LIFO inventory cost-flow assumption. B. switching from the percent of credit sales method to the aging of accounts receivable method for estimating bad debts. C. those necessitated by FASB codification updates that require companies to adopt new accounting methods. D. changing the method to amortize the goodwill that arises from acquisition of another business.

A & C A. switching from the FIFO to LIFO inventory cost-flow assumption. C. those necessitated by FASB codification updates that require companies to adopt new accounting methods.

In which situations could an auditor issue a qualified opinion on a company's financial statements? Multiple Select A. When the scope of the audit is restricted, preventing the auditor from performing an essential audit work B. When the financial statements are misrepresented, misstated, and do not present fairly in all material respects the financial position and results of operations C. When the financial statements are presented fairly in all material respects and are in conformity with the generally accepted accounting principles D. When there is a material deviation from generally accepted accounting principles that affects only a part of the financial statements

A & D A. When the scope of the audit is restricted, preventing the auditor from performing an essential audit work D. When there is a material deviation from generally accepted accounting principles that affects only a part of the financial statements

In 2004, a rather strict interpretation of Section 404 of SOX was implemented. As a result, all public registrants have since been required to: Multiple select question. A. thoroughly document, test, and take responsibility for the effectiveness of their accounting and financial reporting safeguards. B. include a separate "Management's Report on Internal Control over Financial Reporting" with all 10-K filings. C. include with all 10-K filings an independent auditors' opinion on the effectiveness of the company's internal control systems. D. hold open hearings in a public equity tribunal concerning any shareholder claims of corporate mismanagement prior to the AGM.

A, B & C A. thoroughly document, test, and take responsibility for the effectiveness of their accounting and financial reporting safeguards. B. include a separate "Management's Report on Internal Control over Financial Reporting" with all 10-K filings. C. include with all 10-K filings an independent auditors' opinion on the effectiveness of the company's internal control systems.

Most corporate annual reports present a summary of financial data for at least five years; items frequently included in the summary include: Multiple select question. A. working capital at year end B. earnings per share C. average stockholders' equity D. allowance for doubtful accounts

A, B & C A. working capital at year end B. earnings per share C. average stockholders' equity

Sometimes events subsequent to the balance sheet date would have a material impact on the balance sheet or income statement. Which of these fall into that category and therefore should be described in the notes to the financial statements? Multiple select question. A. Issuance of a large amount of capital stock B. Agreement to enter into a business combination C. Decisions by management to begin serving new product markets and/or geographic locations D. Restructuring of long-term debt

A, B & D A. Issuance of a large amount of capital stock B. Agreement to enter into a business combination D. Restructuring of long-term debt

What are some of the key requirements that the Dodd-Frank Act imposed on businesses? Multiple select question. A. That executive compensation and golden parachute provisions must have periodic shareholder advisory votes B. To disclose the reasons a company has chosen to have either the same person or separate people serve as the CEO and board chair C. That the SEC implement rules to permit shareholders to use management's proxy materials for the purpose of nominating their own directors D. To have clawback policies in place to recoup executive compensation in the event of financial reporting restatements

A, B & D A. That executive compensation and golden parachute provisions must have periodic shareholder advisory votes B. To disclose the reasons a company has chosen to have either the same person or separate people serve as the CEO and board chair D. To have clawback policies in place to recoup executive compensation in the event of financial reporting restatements

How should information about a company's stock purchase plan be reported in notes to the financial statements? Multiple select question. A. The potential dilution of equity should be disclosed. B. The nature of the plan should be disclosed. C. Stock option grants should be backdated if the market price of the stock was lower within the past three months. D. Stock purchase plans should be accounted for under the fair value method.

A, B & D A. The potential dilution of equity should be disclosed. B. The nature of the plan should be disclosed. D. Stock purchase plans should be accounted for under the fair value method.

Most corporate annual reports present a summary of financial data for at least five years; items frequently included in the summary include: Multiple select question. A. dividends per share B. earnings as a percentage of sales C. wages payable at year end D. average assets

A, B & D A. dividends per share B. earnings as a percentage of sales D. average assets

Some of the key financial shenanigans related to the income statement that have occurred in recent years (as identified by Schilit and Perler) include: Multiple select question. A. recording revenue too soon. B. shifting current expenses to a later period. C. recording expenses paid in advance as asset. D. boosting income using one-time or unsustainable activities.

A, B & D A. recording revenue too soon. B. shifting current expenses to a later period. D. boosting income using one-time or unsustainable activities.

A business segment is a group of the firm's business activities that has a common denominator. The components of each business segment are identified and defined by management. Segments may reflect: Multiple select question. A. product line groups B. manufacturing processes C. organizational structure D. industries served E. reporting requirement

A, B, C & D A. product line groups B. manufacturing processes C. organizational structure D. industries served

Identify the correct statements about the method used for accounting mergers and acquisitions. Multiple select question. A. If the payment made for the acquisition of net assets is more than their fair value, the excess amount is recorded as goodwill. B. The acquiring company records the acquisition of net assets at their book value at the date of acquisition. C. If there is any goodwill recognized during acquisition, the goodwill needs to be evaluated annually for possible impairment losses. D. The acquiring company records the acquisition of net assets at their fair value at the date of acquisition.

A, C & D A. If the payment made for the acquisition of net assets is more than their fair value, the excess amount is recorded as goodwill. C. If there is any goodwill recognized during acquisition, the goodwill needs to be evaluated annually for possible impairment losses. D. The acquiring company records the acquisition of net assets at their fair value at the date of acquisition.

What information about the intangible asset goodwill would be included in notes to the financial statements? Multiple select question. A. The cost of other acquisition-related intangibles and the methods used to amortize them B. The estimated value of the firm's public relations efforts and charitable activities C. Reductions in the cost of goodwill due to impairment losses D. The method of recognizing its initial cost, arising from business acquisitions

A, C & D A. The cost of other acquisition-related intangibles and the methods used to amortize them C. Reductions in the cost of goodwill due to impairment losses D. The method of recognizing its initial cost, arising from business acquisitions

What information about the intangible asset goodwill would be included in notes to the financial statements? Multiple select question. A. The method of recognizing its initial cost, arising from business acquisitions B. The estimated value of the firm's public relations efforts and charitable activities C. The cost of other acquisition-related intangibles and the methods used to amortize them D. Reductions in the cost of goodwill due to impairment losses

A, C & D A. The method of recognizing its initial cost, arising from business acquisitions C. The cost of other acquisition-related intangibles and the methods used to amortize them D. Reductions in the cost of goodwill due to impairment losses

What is included in corporate governance? Multiple select question. A. The responsibilities of the board of directors and its various committees B. The decisions made by human resource managers in determining who to hire for entry-level positions C. The company's structures, control mechanisms, rules, and regulations D. The company's sense of business ethics and social responsibility

A, C & D A. The responsibilities of the board of directors and its various committees C. The company's structures, control mechanisms, rules, and regulations D. The company's sense of business ethics and social responsibility

The key components of net pension expense include: Multiple select question. A. expected return on plan assets. B. pension plan benefit payments. C. service cost. D. interest cost of the projected benefit obligation.

A, C & D A. expected return on plan assets. C. service cost. D. interest cost of the projected benefit obligation.

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: Multiple select question. A. issuance of a large amount of long-term debt. B. switch from the FIFO to LIFO inventory cost-flow assumption. C. issuance of a large amount of capital stock D. sale of a significant part of the company's assets.

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

Segment disclosures for publicly traded companies are generally required for: Multiple select question. A. lines of business. B. race and ethnicity. C. geographic territories. D. major customers.

A, C & D A. lines of business. C. geographic territories. D. major customers.

Some of the key financial shenanigans related to the income statement that have occurred in recent years (as identified by Schilit and Perler) include: Multiple select question. A. shifting current expenses to a later period. B. recording income received in advance as liability. C. shifting current income to a later period. D. recording bogus revenue.

A, C & D A. shifting current expenses to a later period. C. shifting current income to a later period. D. recording bogus revenue.

Some of the significant policies that are frequently described in the notes to the financial statements of publicly traded companies include details concerning: Multiple select question. A. stock option and stock purchase plans. B. product warranties. C. inventory valuation methods. D. goodwill and acquisition-related intangibles. E. income taxes.

A, C, D & E A. stock option and stock purchase plans. C. inventory valuation methods. D. goodwill and acquisition-related intangibles. E. income taxes.

Management's Discussion and Analysis (MD&A): A. All of these answers are correct. B. is designed to enhance public disclosure of information about the corporation. C. often includes disclosures concerning non-GAAP financial measures and key performance indicators that are used to assess the company's financial and operating results. D. is a part of the annual report that should be read by current and potential investors.

A. All of these answers are correct.

What other type of audit is conducted in conjunction with the audit of financial statements? A. Internal control audit B. Bookkeeping audit C. Tax audit D. Payroll audit

A. Internal control audit

Identify a true statement regarding management's discussion and analysis (MD&A) provided in a company's annual report. A. It discloses non-GAAP financial measures and key performance indicators used to assess the company's financial and operating results. B. It explains that the responsibility for the fair presentation of financial statements lies with the management of the firm. C. It includes disclosures regarding changes in the application of accounting principles made by the firm. D. It provides analysis about each and every financial statement item and presents the analysis in the same sequence of the financial statements.

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

What are some of the key note disclosures frequently reported regarding income taxes? Multiple select question. A. A comprehensive list of the company's income sources throughout the fiscal year B. A reconciliation of the statutory income tax rate with the company's effective tax rate C. An explanation of the deferred taxes resulting from differences between the fiscal year in which an expense or revenue is reported for book purposes and the fiscal year in which it is reported for tax purposes D. A geopolitical comparison of the income taxes assessed against the company relative to the rates that would have applied in other nations

B & C B. A reconciliation of the statutory income tax rate with the company's effective tax rate C. An explanation of the deferred taxes resulting from differences between the fiscal year in which an expense or revenue is reported for book purposes and the fiscal year in which it is reported for tax purposes

What circumstances frequently require departures from the standard auditors' report? Multiple select question. A. Delivering an unqualified audit opinion B. A material change from a prior accounting period in the application of an accounting principle C. Unfavorable macroeconomic trends facing the firm and its industry D. Basing the opinion in part on the work of another auditor

B & D B. A material change from a prior accounting period in the application of an accounting principle D. Basing the opinion in part on the work of another auditor

What information about depreciation is usually disclosed in notes to the financial statements? Multiple select question. A. The amount of depreciation the company reported in the previous fiscal period B. The range of useful lives assumed for broad categories of asset types C. The total amount of depreciation the company has reported during the past five or ten years D. The company's method of reporting depreciation: straight-line, units-of-production, or sum-of-the-years'-digits.

B & D B. The range of useful lives assumed for broad categories of asset types D. The company's method of reporting depreciation: straight-line, units-of-production, or sum-of-the-years'-digits.

Identify the correct statements about notes that are an integral part of the financial statements. Multiple select question. A. They include a description of the firm's activities for the year. B. They include a narrative section called management's discussion and analysis (MD&A). C. They contain important disclosures that are not contained in the financial statements themselves. D. They help users of the financial statements to make informed decisions and judgments.

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

While auditing 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) ______ opinion. A. unqualified B. qualified C. clean D. adverse

D. adverse

Assume that Ellis Inc. reported basic earnings per share and cash dividends per share of $3.00 and $1.20, respectively, for Year 1 and that in Year 2, the firm had a 2-for-1 stock split. In the annual report for Year 2, earnings per share (EPS) and dividends per share (DPS) for Year 1 should be reported as: A. EPS = $3.00 / 2 = $1.50 DPS = $1.20 (not restated) B. EPS = $3.00 (not restated) DPS = $1.20 / 2 = $0.60 C. EPS = $3.00 / 2 = $1.50 DPS = $1.20 / 2 = $0.60 D. EPS = $3.00 x 2 = $6.00 DPS = $1.20 x 2 = $2.40

C. EPS = $3.00 / 2 = $1.50 DPS = $1.20 / 2 = $0.60

A firm's independent auditors have the responsibility to: A. uncover all fraudulent activities. B. assess management's discussion and analysis. C. ascertain the firm's profit potential. D. assess the firm's accounting policies.

D. assess the firm's accounting policies.

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 ______. A. Big F restatement B. Big R restatement C. little f restatement D. little r restatement

D. little r restatement

Which of the following descriptions is not one of the "Financial Shenanigans" identified by Schilit and Perler: A. failing to record or improperly reducing liabilities. B. shifting future expenses to the current period as a special charge. C. recording revenue too soon or that is of a questionable quality. D. failing to record intangible assets which the company has ownership rights to. E. boosting income with one-time gains.

D. failing to record intangible assets which the company has ownership rights to.

When employees have an opportunity to purchase shares of their company's common stock at a discount from market value, what is this fringe benefit called? A. A stock option plan B. An unrestricted stock issuance C. A stock option-pricing model D. A stock purchase plan

D. A stock purchase plan

Firms that issue registered securities are required to file, with the SEC on an annual basis, which of the following? A. An annual report. B. A form 10-K. C. A set of financial statements. D. All of these are mandatory annual SEC filings for firms that have issued registered securities.

D. All of these are mandatory annual SEC filings for firms that have issued registered securities.