QB Introduction To FSA
QB Introduction To FSA
QB Introduction To FSA
1. Ratios are an input into which step in the financial statement analysis framework?
A. Process data
B. Collect input data
C. Analyze/interpret the processed data
2. Which phase in the financial statement analysis framework is most likely to involve
producing updated reports and recommendations?
A. Follow-up
B. Analyze/interpret the processed data
C. Develop and communicate conclusions and recommendations
3. Which of the following best describes the role of financial statement analysis?
A. To provide information about a company’s performance
B. To provide information about a company’s changes in financial position
C. To form expectations about a company’s future performance and financial position
8. Which of the following best describes why the notes that accompany the financial
statements are required? The notes:
A. permit flexibility in statement preparation.
B. standardize financial reporting across companies.
C. provide information necessary to understand the financial statements.
B. management commentary.
C. notes to the financial statements.
10. Information about management and director compensation is most likely to be found
in the:
A. auditor’s report.
B. proxy statement.
C. earnings release.
11. Information about a company’s objectives, strategies, and significant risks are most
likely to be found in the:
A. auditor’s report.
B. management commentary.
C. notes to the financial statements.
12. What type of audit opinion is preferred when analyzing financial statements?
A. Adverse
B. Qualified
C. Unqualified
15. Interim financial reports released by a company are most likely to be:
A. monthly.
B. unaudited.
C. unqualified.
16. Which of the following sources of information used by analysts is found outside a
company’s annual report?
A. Auditor’s report
B. Peer company analysis
C. Management discussion and analysis
17. For a company issuing securities in the United States to meet its obligations under
the Sarbanes–Oxley Act, which of the following is management required to attest to?
18. Which of the following reports is least likely to be filed with the US SEC?
A. Annual report
B. Form 10-K
C. Proxy statement
20. Which of the following statements is most accurate about the responsibilities of an
auditor for a publicly traded firm in the United States? The auditor must:
A. state that the financial statements are prepared according to generally accepted
accounting principles.
B. ensure that the financial statements are free from error, fraud, or illegal acts.
C. express an opinion about the effectiveness of the company’s internal control
systems.
21. Common-size financial statements are most likely a component of which step in the
financial analysis framework?
A. Collect data
B. Analyze/interpret data
C. Process data
22. 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 audit report.
C. financial statement analysis.
24. Where might an analyst look for details covering the full extent of a company’s capital
resources?
A. Balance sheet
B. Notes to the financial statements
C. Management discussion and analysis (MD&A)
27. Which of the following opinions is the best indication that the auditor believes that
the financial statements depart materially from accounting standards and are not
fairly presented?
A. Adverse opinion
B. Qualified opinion
C. Disclaimer of opinion
28. A qualified audit opinion is most likely issued when financial statements are prepared:
A. in compliance with accounting standards.
B. with material departures from accounting standards.
C. with some limitation or exception to accounting standards.
29. Common-size statements are most likely the output of which of the following phases
of the financial statement analysis framework?
A. Process data
B. Analyze/interpret the processed data
C. Develop and communicate conclusions and recommendations
Solutions
1. C is correct. Ratios are an output of the process information step but are an input
into the analyze/interpret data step.
2. A is correct. The follow-up phase involves gathering information and repeating the
analysis to determine whether it is necessary to update reports and
recommendations.
3. C is correct. In general, analysts seek to examine the past and current performance
and financial position of a company to form expectations about its future
performance and financial position.
7. C is correct. A core objective of IOSCO is to ensure that markets are fair, efficient,
and transparent. The other core objectives are to reduce, not eliminate, systemic
risk and to protect investors, not all users of financial statements.
12. C is correct. An unqualified opinion is a “clean” opinion and indicates that the financial
statements present the company’s performance and financial position fairly in
accordance with applicable accounting standards.
13. B is correct. A qualified audit opinion is one in which there is some scope limitation or
exception to accounting standards. Exceptions are described in the audit report with
additional explanatory paragraphs so that the analyst can determine the importance
of the exception.
14. B is correct. The independent audit report provides reasonable assurance that the
financial statements are fairly presented, meaning that there is a high probability
that the audited financial statements are free from material error, fraud, or illegal
acts that have a direct effect on the financial statements.
15. B is correct. Interim reports are typically provided semiannually or quarterly and
require certain financial information, including unaudited financial statements and an
MD&A for the interim period covered by the report. Unqualified refers to a type of
audit opinion.
16. B is correct. When performing financial statement analysis, analysts should review all
company sources of information as well as information from external sources
regarding the economy, the industry, the company, and peer (comparable) companies.
17. A is correct because the [Sarbanes-Oxley] act addresses auditor independence (it
prohibits auditors from providing certain non-audit services to the companies they
audit); strengthens corporate responsibility for financial reports (it requires
executive management to certify that the company's financial reports fairly present
the company's condition); and requires management to report on the effectiveness
of the company's internal control over financial reporting (including obtaining
external auditor confirmation of the effectiveness of internal control).
18. A is correct because the annual report is not a requirement of the US SEC.
20. C is correct. For a publicly traded firm in the United States, the auditor must express
an opinion as to whether the company’s internal control system is in accordance with
the Public Accounting Oversight Board, under the Sarbanes–Oxley Act. The opinion
is given either in a final paragraph in the auditor’s report or as a separate opinion.
21. C is correct. Preparing common-size financial statements is part of the process data
step.
22. 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.
23. A is correct because IOSCO assists in attaining the goal of uniform regulation as well
as cross-border cooperation in combating violations of securities and derivatives laws.
24. C is correct because in the MD&A, management must highlight any favorable or
unfavorable trends and identify significant events and uncertainties that affect the
company’s liquidity, capital resources, and results of operations. The MD&A must also
provide information about off-balance-sheet obligations and about contractual
commitments, such as purchase obligations.
25. B is correct because the notes also disclose information about the accounting policies,
methods, and estimates used to prepare the financial statements.
26. A is correct because a disclaimer of opinion occurs when auditors are unable to issue
an opinion.
27. A is correct because an adverse audit opinion is issued when an auditor determines
that the financial statements materially depart from accounting standards and are
not fairly presented.
29. A is correct because common-size statements are an output of the “process data”
phase of the financial statement analysis framework.