Question 1

The FASB was given Congressional authority to write accounting rules.

Accepted Answer

The Financial Accounting Standards Board (FASB) is an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States, but it was not given this authority by Congress. Instead, it operates under the auspices of the Financial Accounting Foundation (FAF), a private-sector organization.

Question 2

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

Accepted Answer

Financial statements in the U.S. are typically prepared in accordance with generally accepted accounting principles (GAAP).

Question 3

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

Accepted Answer

The SEC requires only public companies to file a Form 10-K report annually; private companies are not subject to this requirement.

Question 4

A corporate annual report contains three basic financial statements.

Accepted Answer

The answer of A corporate annual report contains three basic...

Question 5

The goal of the International Accounting Standards Board is the adoption of uniform international accounting standards.

Accepted Answer

The International Accounting Standards Board (IASB) aims to promote the adoption of high-quality, uniform global accounting standards through its development and publication of International Financial Reporting Standards (IFRSs).

Question 6

Annual reports of public companies can only be found on the SEC's EDGAR database.

Accepted Answer

Annual reports of public companies can be found on the SEC's EDGAR database, but they are also often available directly from the company's website, through investor relations pages, or financial information platforms and services.

Question 7

The notes to financial statements, while helpful, are not an integral part of the statements.

Accepted Answer

The notes to financial statements are an integral part of the statements as they provide additional information and details that are necessary for a complete understanding of the financial statements. They help to clarify the numbers and provide context for the financial data presented in the statements.

Question 8

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

The Sarbanes-Oxley Act requires the CEO and CFO, not all management and directors, to certify the accuracy of financial statements.

Question 9

Management is responsible for the preparation of the financial statements, including the notes, and the auditor's report attests to the fairness of the presentation.

Accepted Answer

This statement is true. The management of a company is responsible for preparing its financial statements, while the auditor's role is to review and test the statements to ensure that they are presented fairly and accurately. The auditor's report then confirms that the statements are in compliance with accounting standards and regulations.

Question 10

Publicity in the media can impact a firm's financial performance.

Accepted Answer

Publicity in the media can affect a firm's reputation, which can lead to changes in consumer behavior, investor sentiment, and ultimately, financial performance. Positive publicity can increase sales and attract new customers, while negative publicity can harm a firm's image and decrease sales. Similarly, media coverage of a firm's financial performance can impact investor confidence and stock prices. Therefore, publicity in the media can have a significant impact on a firm's financial performance.

Question 11

Despite the enactment of the Sarbanes-Oxley Act of 2002, corruption and unethical behavior continued in the 2000s.

Accepted Answer

The Sarbanes-Oxley Act of 2002 aimed to improve corporate governance and reduce financial misconduct, but it did not completely eliminate corruption and unethical behavior in the 2000s. There were still several high-profile cases of corporate fraud and unethical practices during that time period.

Question 12

An unqualified auditor's report states that the financial statements present fairly the financial position, results of operation, and the cash flows of the entity.

Accepted Answer

An unqualified auditor's report is issued when the auditor has no significant reservations about the financial statements and therefore states that the financial statements present fairly the financial position, results of operation, and the cash flows of the entity.

Question 13

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

Accepted Answer

The proxy statement does indeed offer information about corporate governance, audit-related matters, directors and executive compensation, and related party transactions.

Question 14

Conglomerates operating in diversified lines of business are required to create separate annual reports for each line of business.

Accepted Answer

Conglomerates are not required to create separate annual reports for each line of business. They may choose to do so for internal reporting purposes, but the main annual report would typically cover the entire conglomerate as a whole.

Question 15

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

The management discussion and analysis section of a company's financial report provides commentary and analysis from management regarding the company's performance, strategy, risks, and future outlook. This information cannot be found solely in the financial data and can provide valuable insights for analysts.

Question 16

A basic understanding of financial statements is needed due to ongoing financial turmoil and major corporate failures.

Accepted Answer

Understanding financial statements is crucial for investors, stakeholders, and even individuals to make informed decisions and avoid financial risks. The recent financial crises and corporate scandals have highlighted the importance of financial literacy and the need for financial transparency and accountability.

Question 17

The shareholders' letter from the CEO of a firm offers factual information needed to analyze the financial statements.

Accepted Answer

The shareholders' letter from the CEO typically provides an overview of the company's performance, future outlook, and strategic direction, rather than the detailed factual information required to analyze financial statements, which is found in the financial statements themselves and accompanying notes.

Question 18

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

This is a requirement under the Securities and Exchange Commission's regulations for management discussion and analysis in annual reports. This information is important for investors and stakeholders to understand the company's future investment plans and how they will be financed.

Question 19

In 2006, the IASB and the FASB agreed to work on all major projects jointly.

Accepted Answer

The IASB and the FASB did agree to work on all major projects jointly in 2006, as part of a cooperation agreement known as the Norwalk Agreement.

Question 20

The Sarbanes-Oxley Act eliminated the need for internal auditors.

Accepted Answer

The Sarbanes-Oxley Act actually increased the need and importance of internal auditors to ensure compliance with the law and regulations.

Quiz 1: Financial Statements: an Overview