cityboy

3. Providing information about the performance of a company, its financial position, and changes in financial position that is useful to a wide range of users is most accurately described as the role of:

A. financial reporting.

B. the auditor’s report.

C. financial statement analysis.

  
    Ans: A

A is correct. The role of financial reporting is to provide information about the performance of a company, its financial position, and changes in financial position that is useful to a wide range of users in making economic decisions.

B is incorrect. The role of the auditor’s report is to provide reasonable assurance that the financial statements are free of material mistakes.

C is incorrect. The role of financial statement analysis is to help analysts or investors to make a wide array of economic decisions, including evaluating potential equity or venture capital investments, evaluating corporate division or subsidiaries and forecasting future financial performance.

cityboy

2. The financial statement that would be most helpful to an analyst in understanding the changes that have occurred in a company’s retained earnings over a year is the statement of:

A. changes in equity.

B. financial position.

C. comprehensive income.

  
    Ans: A;

A is correct. The statement of changes in equity reports the changes in the components of shareholders’ equity over the year, which would include the retained earnings account.

B is incorrect. The statement of financial position (Balance Sheet) reports a company’s financial position at a specific time.

C is incorrect. The statement of comprehensive income illustrates the financial performance and results of operations of a particular company or entity for a period of time.