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Auditing: Questions 42 through 47

42. 10-K reports are:
A) Another name for annual reports to stockholders
B) Quarterly filings made by company with the SEC
C) Annual filings made by company with SEC
D) Filings made by company with SEC when a company

43. The management of Finner Company believes that "the statement of cash flow is not a very useful
statement" and does not include it with the company's financial statements. As a result the auditors
opinion should be:
A) qualified
B) unqualified
C) adverse
D) disclaimed

44. Which of the following statements is incorrect?
A) under GAAP statements are prepared using accrual accounting
B) Under GAAP all assets are market to market each accounting period
C) Under GAAP it is necessary to make certain estimates
D) Annual statement submitted to the SEC (10-K) must be prepared using GAAP

45. When analyzing financial statements it is important to recognize that accounting distortions can arise. Accounting distortions are those things that cause deviations in accounting information from the underlying economics. Which of the following statements is not correct? Accounting distortions:
A) Can arise as management may deliberately manipulate financial statements.
B) Arise often through application of (correct) accounting principles
C) Can affect the quality of earnings
D) Arise because the stock market is not efficient

46. Which of the following is a change in accounting estimate
I. a change form straight line depreciation to an accelerated depreciated method
II. a change in estimated salvage value of depreciable asset
III. a change in estimated useful life of an asset
IV. recording depreciation for first time on machinery purchased five years ago

A) I, II and IV
B) II, III and IV
C) I, III and IV
D) II and III

47. Which of the following are changes in accounting principle?
I. a change from LIFO to FIFO
II. a change in estimated salvage value of depreciable asset
III. a change from an accelerated depreciated method to straight line depreciation
IV. recording depreciation for first time on machinery purchase five years ago

A) I, II and IV
B) I, II and III
C) I, III and IV
D) I and III

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Solution Preview

42. 10-K is the annual report required by the SEC. 10-Qs are the quarterly reports filed.

43. The Statement of Cash Flows is a required part of the financial statement package. A qualified report would be issued without it although there could ...

Solution Summary

The solution presents a sentence or two in reponse to each question about audit opinions, GAAP and reporting to the SEC.

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