Why should an individual learn to read and interpret financial statements?
Individuals cannot necessarily rely on auditors and management of firms to offer honest information about the financial well-being of firms
Which of the following organizations write accounting rules?
B) FASB, SEC, and IASB
What is the goal of the IASB?
To have worldwide acceptance of a set of international financial reporting standards
What are the basic financial statements provided in an annual report?
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Stockholders' Equity
What items are included in the notes to the financial statements?
Summary of accounting policies
Changes in accounting policies
Detail about particular accounts
What does an unqualified auditor's report indicate?
The financial statements present fairly the financial position, the results of operations, and the changes in cash flows for the company
True or False?
The SOX act of 2002 was the cause of the demise of Enron
False
True or False?
The FASB and the IASB are working closely to develop a set of accounting rules that would ultimately be used by all publicly traded companies world wide
True
True or False?
The Public Company Accounting Oversight Board is responsible for monitoring auditors of fall publicly owned companies
True
True or False?
The SOX act of 2002 requires the chief executive officer and the chief financial offer of a publicly traded company to certify the accuracy of the financial statements
True
What does Section 404 of the SOX act of 2002 require?
A statement by the company regarding the effectiveness of internal controls and disclosure of any material weaknesses in a firm's internal control system
What subject(s) should the management discussion and analysis section discuss?
Liquidity
Commitments for capital expenditures
A breakdown of sales increases into price and volume components
Which of the following is true?
A) Public relations material should be used cautiously
What information can be found in a proxy statement?
Information on voting procedures
Information on executive compensation
Information on the breakdown of audit and nonaudit fees paid to the audit firm
Which information is hard to find or missing from the financial statements?
Reputation of the firm with its customers
What is the accrual basis of accounting?
Recognition of revenue in the accounting period when the sale is made rather that when cash is recieved
Matching expenses with revenue in the appropriate accounting period
How can managment manipulate earnings and lower the quality of reported earnings?
Change accounting policy to increase earnings
Not taking a loss on inventory in the accounting period when the inventory is known to be obsolete
Decreasing discretionary expenses
Where would you find the following information?
An attestation to the fairness of financial statements
Auditor's Report
Where would you find the following information?
Summary of significant accounting policies
Notes to the financial statements
Where would you find the following information?
Cash flow from operating, financing, and investing activities
Financial Statements
Where would you find the following information?
A qualified opinion
Auditor's Report
Where would you find the following information?
Information about principal, interest, and maturity of long-term debt
Notes to the financial statements
Where would you find the following information?
Financial position on a particular date
Financial Statements
Where would you find the following information?
Discussion of the company's results of operations
Managment discussion and analysis
Where would you find the following information?
Description of pension plans
Notes to the financial statements
Where would you find the following information?
Anticipated commitments for capital expenditures
Managment discussion and analysis
Where would you find the following information?
Reconciliation of beginning and ending balances of equity accounts
Financial statements or notes to the financial statements
What things are found in the Management Discussion and Analysis section?
The internal and external sources of liquidity
Any material deficiencies in liquidity and how they will be remedied
Commitments for capital expenditures, the purpose of such commitments, and expected sources of funding
Anticipated changes in the mix of financing resources
Unusual or infrequent transactions that affect income from continuing operations
Events that cause material changes in the relationship between costs and revenues
A breakdown of sales increases into price and volume components
What did title I of SOX establish?
The Public Company Accounting Oversight Board (PCAOB)
What is the Public Company Accounting Oversight Board (PCAOB)?
A private, non-profit organization that has been given the authority to register, inspect, and discipline auditore of all publicly owned companies
What does the SEC do in terms of the PCAOB?
They appoint board members
What authority does the PCAOB have?
They have the authority to write auditing rules, and set quality control and ethics standards
What does Title II of SOX prohibit?
Prohibits audit firms from providing certain nonaudit services when conducting an external audit of a firm.