Question 1

Which of the following topics is not required by the Securities and Exchange Commission to be included in the Management Discussion and Analysis section?

Accepted Answer

The SEC does not specifically require companies to discuss adjustments for inflation in the Management Discussion and Analysis section.

Question 2

The Management Discussion and Analysis section of the annual report is a part of the audited financial statements.

Accepted Answer

The Management Discussion and Analysis (MD&A) section is not part of the audited financial statements; it is a separate section where management discusses the company's performance and future outlook.

Question 3

All of the following are required disclosures of the board members except ________.

Accepted Answer

The home address of each board member is typically not required to be disclosed for privacy and security reasons.

Question 4

If an auditor is unable to form an opinion on the fair presentation of the financial statements, a disclaimer of opinion will be issued.

Accepted Answer

A disclaimer of opinion is issued when an auditor cannot obtain sufficient appropriate evidence to form an opinion on the financial statements.

Question 5

The most common auditor's opinion issued on financial statements is a(n) ________.

Accepted Answer

An unqualified opinion is the most common auditor's opinion, indicating that the financial statements present a true and fair view in accordance with the applicable financial reporting framework.

Question 6

The indirect method of reporting cash flows from operating activities begins with net income from the income statement.

Accepted Answer

The indirect method starts with net income and adjusts for changes in working capital and non-cash expenses to calculate cash flows from operating activities.

Question 7

A body that oversees the activities of the company is known as ________.

Accepted Answer

The board of directors is responsible for overseeing the activities and governance of a company, ensuring it acts in the best interests of its shareholders.

Question 8

When using the indirect method to report cash flows from operating activities, depreciation expense is subtracted from net income to arrive at net cash provided by operating activities.

Accepted Answer

In the indirect method, depreciation expense is added back to net income because it is a non-cash expense that reduces net income but does not affect cash flow.

Question 9

List the types of opinions that may be issued by an auditor on a company's financial statements and explain the circumstances under which it is issued.

Accepted Answer

The answer of List the types of opinions that may...

Question 10

The accounting staff of Brooks and Dunn Corporation is preparing the annual report for the current fiscal year. The staff member in charge of developing the footnotes has requested assistance with classifying the following information:
 1. The depreciable lives of the company's assets range from 5 to 10 years.
2. The corporation acquired Miley Cyrus Corporation by issting 100,000 shares of common stock two weeks after the end of the current fiscal year.
3. The total amount, interest rate, and maturity dates of all leases.
4. The company uses FIFO and lower of cost or market to value its inventory.
5. The allowance for uncollectible accounts is $ \$ 16,000 $.
6. Structure of the company's pension plan.
7. The company uses the percentage of completion method to account for construction contracts.
8. Accrued liabilities are composed of salaries payable, taxes payable, and interest payable.
Cash equivalents are defined as those financial instruments that can be converted into cash in days or less.
10. The corporation leases a building from a majority shareholder at a rate that is comparable to market rates.
 Required:
Indicate whether the above items should be disclosed in (a) the summary of significant accounting policies note, (b) in a separate disclosure note, or (c) on the face of the balance sheet.

Accepted Answer

The answer of The accounting staff of Brooks and Dunn...

Question 11

If an auditor's independence is impaired during an audit, an adverse opinion will be issued.

Accepted Answer

An auditor's independence being impaired affects their ability to conduct the audit objectively, but it does not directly result in an adverse opinion. An adverse opinion is issued when financial statements are materially misstated.

Question 12

If there is concern that a company might not continue in existence, but the auditor has concluded that the financial statements are fairly presented, the opinion that will be issued is a(n) ________.

Accepted Answer

An unqualified opinion with an explanatory paragraph is issued when the financial statements are fairly presented, but there is a concern about the company's ability to continue as a going concern.

Question 13

Management is responsible for the fair presentation of a company's financial statements.

Accepted Answer

Management is responsible for ensuring that the financial statements are prepared accurately and in accordance with applicable accounting standards and regulations.

Question 14

A subsequent event is a significant event that occurs after the date of the fiscal year-end, but before the financial statements are issued or available to be issued. Explain how these significant events are disclosed.

Accepted Answer

The answer of A subsequent event is a significant event...

Question 15

If an auditor is not able to gather enough evidence to form an opinion on financial statements, the auditor issues a(n) ________.

Accepted Answer

A disclaimer of opinion is issued when an auditor is unable to obtain sufficient appropriate evidence to form an opinion on the financial statements.

Question 16

Define the term subsequent event, explain the two types of subsequent events and provide an example of each.

Accepted Answer

The answer of Define the term subsequent event, explain the...

Question 17

If a company's financial statements are not fairly presented, which type of opinion will the auditor issue?

Accepted Answer

An adverse opinion is issued when the auditor determines that the financial statements are not fairly presented and contain material misstatements.

Question 18

The direct method of reporting cash flows from operating activities begins with net income from the income statement.

Accepted Answer

The direct method of reporting cash flows from operating activities lists cash receipts and payments directly, without starting with net income.

Question 19

Which of the following items is not required to be presented in management's report on internal control?

Accepted Answer

The extent to which internal auditors assisted management is not required to be presented in management's report on internal control. The report typically includes management's responsibility for internal control, an assertion on its effectiveness, and the framework used for assessment.

Question 20

Most annual reports begin with the letter to the shareholders.

Accepted Answer

Most annual reports typically start with a letter to the shareholders from the CEO or chairman, summarizing the company's performance and outlook.

Quiz 6: Statements of Financial Position and Cash Flows and the Annual Report