Question 1

The stock of Gates,Inc.,is widely held,and the company is under the jurisdiction of the Securities and Exchange Commission.In the annual report,information about the significant accounting policies adopted by Gates should be

Accepted Answer

The significant accounting policies adopted by a company should be included as an integral part of the financial statements. This information is essential for users of the annual report to understand how the financial statements were prepared and to make informed decisions. Therefore, it should not be omitted, presented as supplementary information or excluded because of regulations of the Securities and Exchange Commission.

Question 2

An Account Principles Board Opinion was concerned with disclosure of accounting policies.A singular feature of this particular opinion is that it

Accepted Answer

The unique feature of this particular opinion is that it applies not only to profit-oriented entities but also to not-for-profit entities. This is different from most other opinions which are concerned only with accounting practices of profit-oriented entities.

Question 3

Which of the following situations would require adjustment to or disclosure in the financial statements?

Accepted Answer

The bankruptcy of a significant customer who regularly purchases a significant portion of the company's output will impact the company's revenue and profitability. This would require an adjustment to or disclosure in the financial statements. The other options do not necessarily require adjustments or disclosures in the financial statements.

Question 4

Major,Major,and Sharpe,CPA's,are the auditors of MacLain industries.In connection with the public offering of $10 million of MacLain securities,Major expressed an unqualified opinion as to the financial statements.Subsequent to the offering,certain misstatements and omissions are revealed.Major has been sued by the purchasers of the stock offered pursuant to the registration statement,which include the financial statements audited by Major.In the ensuing lawsuit by the MacLain investors,Major will be able to avoid liability if

Accepted Answer

Major may be able to avoid liability if it can prove due diligence in the audit of the financial statements of MacLain. This means that Major needs to show that it conducted a thorough and reasonable audit, and that any misstatements or omissions were not due to negligence on their part. Choice A is incorrect because even if MacLain caused the errors and omissions, the auditors still have a responsibility to ensure the truth and fairness of the financial statements. Choice B is incorrect because investors are not required to read the financial statements in order to hold the auditors liable for any misstatements or omissions. Choice D is incorrect because while MacLain may have assumed liability for the public offering, this does not necessarily release the auditors from their responsibilities as independent auditors.

Question 5

For interim financial reporting,an inventory loss from a temporary market decline in the first quarter which can reasonably be expected to be restored in the fourth quarter

Accepted Answer

The inventory loss from a temporary market decline that can be reasonably expected to be restored in the fourth quarter need not be recognized as a loss in the first quarter. Interim financial reporting is meant to provide timely and meaningful information to help users of financial statements assess an entity's financial position and performance. However, if there is a reasonable expectation that the inventory value will be restored by the end of the year, recognizing a loss in the first quarter would not reflect the economic reality of the situation. It would be more appropriate to wait until the end of the fiscal year to evaluate the value of the inventory and recognize any necessary adjustments.

Question 6

A major impact of the Foreign Corrupt Practices Act of 1977 is that registrants subject to the Securities Exchange Act of 1934 are now required to

Accepted Answer

The Foreign Corrupt Practices Act of 1977 requires registrants subject to the Securities Exchange Act of 1934 to keep records which reflect the transactions and dispositions of assets and maintain a system of internal accounting controls. This was intended to prevent bribery and corruption in foreign business transactions. While providing access to records by authorized agencies of the federal government is also an important requirement of the Act, it is not the primary impact. Recording correspondence with foreign nations and preparing financial statements in accordance with international accounting standards are also not major impacts of the Act.

Question 7

Footnotes to financial statements should not be used to

Accepted Answer

Footnotes should not be used to correct an improper financial statement presentation. This should be done by revising the financial statements themselves.

Question 8

With respect to disclosure,the unqualified short-form audit report

Accepted Answer

The answer of With respect to disclosure,the unqualified short-form audit...

Question 9

The basic purpose of the securities laws of the United States is to regulate the issue of investment securities by

Accepted Answer

The main purpose of the securities laws is to require companies to provide full and accurate disclosure of all relevant facts to investors so that they can make informed investment decisions. This includes information about the company's financial condition, business operations, and risk factors. The laws also provide for regulation and oversight of securities markets, brokers, and dealers to ensure fairness and transparency in the buying and selling of securities.

Question 10

Significant accounting policies may not be

Accepted Answer

Significant accounting policies must always be disclosed in the financial statements, and cannot be omitted on the basis of judgment. They must be selected on the basis of judgment and are usually selected from existing acceptable alternatives. While they may be innovative or unusual in their application, this is not a requirement for them to be considered significant accounting policies.

Question 11

The Securities and Exchange Commission's fraud rule prohibits trading on the basis of inside information of a business corporation's stock by

Accepted Answer

The Securities and Exchange Commission's fraud rule, specifically Rule 10b-5 under the Securities Exchange Act of 1934, prohibits insider trading, which includes trading based on material, non-public information by officers, directors, and beneficial holders of more than 10% of a corporation's stock.

Question 12

Which of the following should be disclosed in the Summary of Significant Accounting Policies?

Accepted Answer

The Summary of Significant Accounting Policies should disclose the basis of consolidation, which describes how subsidiary companies are included in the financial statements. Choices A, B, and D pertain to specific financial statement elements and would not typically be included in the summary of accounting policies.

Question 13

Under the Securities Act of 1933,subject to some exceptions and limitations,it is unlawful to use the mails or instruments of interstate commerce to sell or offer to sell a security to the public unless

Accepted Answer

The most accurate choice is C. The Securities Act of 1933 requires that all companies that intend to offer or sell securities to the public must file a registration statement with the Securities and Exchange Commission (SEC) before the securities can be offered for sale. The registration statement contains information about the securities being offered, the issuer, and the financial statements of the issuer. The SEC reviews the registration statement and makes sure that it contains all the information required by law. Once the registration statement is found to be acceptable by the SEC, it becomes effective and the securities can be offered or sold to the public. A and B are incorrect as they do not align with the Securities Act of 1933. D is incorrect as it is not required for the SEC to approve of the financial merit of the offering; rather, the SEC focuses on ensuring that all necessary information is properly disclosed to investors.

Question 14

Assuming that none of the following have been disclosed in the financial statements,the most appropriate item for footnote disclosure is the

Accepted Answer

The revision of employees' pension plan is the most appropriate item for footnote disclosure because it directly affects the financial position and obligations of the company, potentially impacting future cash flows and liabilities. Changes in pension plans can have significant financial implications, thus requiring disclosure to inform users of the financial statements about the nature and effect of these changes.

Question 15

The statement that "the financial statements were prepared in accordance with generally accepted accounting principles" is found in the

Accepted Answer

The statement that "the financial statements were prepared in accordance with generally accepted accounting principles" is a statement typically found in the auditor's report.

Question 16

A CPA is subject to a criminal ability if the CPA

Accepted Answer

A CPA can be subject to criminal liability if they willfully omit a material fact required to be stated in a registration statement. This is a violation of securities law and can result in criminal penalties. Refusing to turn over working papers or breaching a contract with a client may result in civil liability but not criminal liability. Negligent performance of an audit may result in professional sanctions but not criminal liability unless it is shown to be intentional or reckless.

Question 17

The primary responsibility for the adequacy of disclosure in the financial statements and footnotes rests with the

Accepted Answer

The client is ultimately responsible for the preparation and accuracy of its financial statements and footnotes. While the auditor has a responsibility to ensure that the financial statements are fairly presented in accordance with the applicable financial reporting framework, the primary responsibility for disclosure rests with the entity.

Question 18

One of the major purposes of federal security regulation is to

Accepted Answer

The major purpose of federal security regulation is to provide sufficient information to the investing public who purchases securities in the marketplace. This is done through the registration and disclosure requirements that companies must abide by when offering securities to the public. By having access to this information, investors can make informed decisions about whether to invest in a particular security. The other options listed are more focused on the regulation of professionals who work in the securities industry, rather than the protection of investors.

Question 19

The Securities and Exchange Commission SEC)was established in1934 to help regulate the U.S.securities market.Which of the following statements is true concerning the SEC?

Accepted Answer

The SEC does not prohibit the sale of speculative securities, nor does it guarantee the accuracy of a registrant's prospectus. Its influence and authority have not diminished; rather, it continues to play a crucial role in regulating the securities market. The SEC's primary function includes regulating securities offered for public sale, ensuring transparency, and maintaining fair trading practices.

Question 20

Footnotes to a company's financial statements are used to

Accepted Answer

Footnotes are used to provide additional details and explanations about certain items or figures in a company's financial statements. They are not used to reflect personalized financial notes or justify fraudulent practices, and they do not typically provide a detailed breakdown of individual employee salaries.

Quiz 17: Financial Reporting Disclosure Requirement and Ethical Responsibilities