Test Bank for Understanding Financial Statements 11th Edition

Test Bank for Understanding Financial Statements 11th Edition By Ormiston Frasier

Test Questions and Solutions

Chapter 1

True-False

1. A firm’s annual report contains only two pieces of information: the financial statements and the notes to the financial statements.

2. The SEC regulates U.S. companies that issue securities to the public and requires the issuance of a prospectus for any new security offering.

3. The FASB has congressional authority to set accounting policies.

4. The European Union began requiring publicly traded companies to use U.S. GAAP in 2005.

5. External auditors are required to audit the internal control assessment of the company as well as the financial statements.

6. Congress passed the Sarbanes-Oxley Act of 2002 in hopes of ending future accounting scandals and renewing investor confidence in the marketplace.

7. The Management Discussion and Analysis is of potential interest to the analyst because it contains information that cannot be found in the financial data.

8. Information that is significant enough to make a difference in a decision is considered to be immaterial.

9. The time period assumption assumes a two year time frame with interim reporting occurring daily and weekly.

10. GAAP-based financial statements are prepared according to the accrual basis of accounting. 

Fill in the Blank

1. The  requires all public companies to file a Form 10-K report annually.

2. A corporate annual report contains  financial statements.

3. is responsible for the preparation of the financial statements, including the notes, and the  attests to the fairness of the presentation.

4. The  was passed in 2002 and was one of the most sweeping corporate reforms since the Securities Act of 1934.

5. The is a document used to solicit shareholder votes.  

6. The Assumption is the assumed unit of measurement when preparing financial statements.

7. The cash basis of accounting recognizes when cash is received and recognizes when cash is paid. 

8. The sharper and clearer the picture presented through the financial data and the closer that picture is to financial reality, the higher the   financial statements and reported earnings.

9. One of the generally accepted accounting principles that provide the foundation for preparing financial statements is the  principle. 

10. Management exercises control over the budget level and timing of  expenditures.