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11. When the financial statements materially depart from accounting standards and are not fairly presented, the audit opinion would be a(n):

A. adverse opinion.

B. qualified opinion.

C. disclaimer of opinion.
    Ans: A.

An adverse opinion occurs when the financial statements materially depart from accounting standards and are not fairly presented. A qualified opinion is one in which there is some limitation or exception to accounting standards.

B is incorrect. A qualified opinion is issued when there is a material instance of noncompliance with applicable accounting standards or there is a limitation on the auditor’s ability to complete the audit as required by auditing standards. A qualified opinion will include an explanatory paragraph describing the problem that prevents the auditors from issuing an unqualified opinion.

C is incorrect. A disclaimer of opinion s issued when the auditor doer not have the ability to issue an opinion for some reason.

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12. An issue subject to a vote at a stockholders’ meeting is presented in a(n):

A. interim report.

B. proxy statement.

C. management statement of responsibility.
    Ans: B.

Proxy statements are prepared and distributed to shareholders on matters that are to be put to a vote at shareholder meetings.

B is incorrect. Public companies are generally required to provide interim financial information, either quarterly or semiannually. Interim financial reports, which include the key financial statements and footnotes, are not audited. They provide updates to a company’s audited annual financial information so that investors, analysts, and other interested parties can assess a company’s incremental financial performance.

C is incorrect. The issue subject to a vote at a stockholders’ meeting will not be presented in management statement of responsibility.

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13.  Information regarding which of the following items is usually included in the footnotes to financial statements?

A. A five-year summary of the company’s financial performance.

B. A summary of significant accounting policies.

C. A review of the company’s operating performance and financial condition.
    Ans: B.

The summary of significant accounting policies is generally the first of the footnotes presented with audited financial statements prepared in conformity with generally accepted accounting principles. The footnotes are an integral part of statements.

A is incorrect. A five-year summary of financial performance is generally included with the (unaudited) supplementary schedules, which are not part of the footnotes.

C is incorrect. A review of the company’s operating performance and financial condition is included as part of the management discussion and analysis (MD&A) section, which is not part of the footnotes.

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14. Which of the following is least likely to be a fundamental principle in the preparation of financial statements within the IFRS Framework?

A. Matching

B. Materiality

C. Accrual basis

  
    Ans: B.

The five fundamental principles underlying the preparation of financial statements under the IFRS Framework are fair presentation, going concern, accrual basis, consistency, and materiality. Matching is a general principle of expense recognition.

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15. Which of the following financial statement elements most accurately represents inflows of economic resources to a company?

A. Gains.

B. Assets.

C. Revenues.
   
Ans: C.

Revenues are inflows from delivering or producing goods, rending services, or other activities that constitute the entity’s ongoing major or central operations.

A is incorrect. Assets are the resources controlled by the firm, but not inflows.

C is incorrect. Gains are an account, not an element of the financial statements.

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16. An analyst’s examination of the performance of a company is least likely to include an assessment of a company’s:

A. profitability.

B. cash flow generating ability.

C. assets relative to its liabilities.

  
    Ans: C.

Assessment of performance includes analysis of profitability and cash flow generating ability. The relationship between assets and liabilities is used to assess a company’s position, not its performance.

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17. Information about a company’s financial position at a point in time is most likely found in the:

A. balance sheet.

B. income statement.

C. cash flow statement.
   
Ans: A.

The balance sheet reports the company’s financial position ar a point in time.

The income statement reports on financial performance over a period of time.

The cash flow statement reports a company’s cash receipts and payments over a period of time.

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18. Which of the following items is least likely to contain details about carious accruals, adjustments, balances, and management assumptions?

A. Income statement.

B. Supplementary schedules.

C. Discussion and analysis by management.
   
Ans: A.

The income statement reports the amounts for each of the major line items within the general categories of revenues and expenses. The various accruals, adjustments, and management assumptions are implicit in the reported amounts but are not specifically explained in the income statement.

B is incorrect. Supplementary schedules contain additional information, including a more detailed breakdown of certain large account balances.

C is incorrect. Much of the detail contained in carious accruals, adjustments, and managements assumptions that go into the financial statements can be found in the footnotes to the statements and Management’s discussion and Analysis.

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19. Which of the following statements about a corporation’s annual reports, SEC filings, and press releases is most accurate?

A. Annual and quarterly SEC filings must be audited.

B. Interim SEC filings typically update the major financial statements and footnotes.

C. Annual reports top shareholders are generally viewed as the most factual and objective source of information about a company.

  
   
Ans: B.

Besides the annual SEC filings, an analyst should examine a company’s quarterly or semiannual filings. These interim filings tropically update the major financial statements and footnotes, but are not necessarily audited. Annual reports to shareholders and press releases are written by management and are often viewed as public relations or sales materials.

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20. Which of the following statements regarding an audit and a standard auditor’s opinion is most accurate?

A. The objective of an audit is to enable the auditor to provide an opinion on the numerical accuracy of the financial statements.

B. To provide an independent review of a company’s financial statements, an independent certified public accounting firm is appointed by the company’s management.

C. The absence of an explanatory paragraph in the audit report relating to the going concern assumption suggests that there are no serious problems that require a close examination of that assumption by the analyst.
   
Ans: C.

A specific explanatory paragraph that makes reference to (questions) the going concern assumption may be a signal of serious problems and call for close examination by the analyst. Therefore, in the absence of such a paragraph, there is no need for a close examination of the going concern assumption by the analyst.

A is incorrect. The objective of an audit is to enable the auditor to provide an opinion on the fairness and reliability of the financial statements. This is not the same as numerical accuracy. The auditor generally only provides reasonable assurance that there are no material errors in the financial statements, not an opinion about their numerical accuracy.

C is incorrect. An independent certified public accounting firm must be appointed by the audit committee of the company’s board of directors, not by its management. Appointment of the auditors by management would reduce the level of perceived independence.