Introduction to Financial Statement Analysis quiz

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 .

Auditors make an independent review of financial statements, which are prepared bycompany management and are management's responsibility. It is the responsibility ofauditors to confirm the assets, liabilities, and other items included in the statements andthen issue an opinion concerning their fairness and reliability.

Interim reports are typically provided semiannually or quarterly and present the four basic financial statements and condensed notes. They are not audited. Unqualified is a type of audit opinion .

Interim reports are provided semi-annually or quarterly, depending on applicable regulatory requirements.

(are audited) is incorrect. Interim reports are not audited.

(include a full set of financial statements and notes) is incorrect. Interim reports generally present the four basic financial statements and condensed notes.

Proxy statements are issued to shareholders when there are matters that require ashareholder vote. These statements, which are also filed with the SEC and available fromEDGAR, are a good source of information about the election of (and qualifications of)board members, compensation, management qualifications, and the issuance of stockoptions.

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.

To be in compliance with Sarbanes–Oxley, it is mandatory that management’s Report to Shareholders discuss internal financial controls and their effectiveness, as well as the company’s auditor’s opinion of these internal controls.

(The suitability of management and director compensation agreements) is incorrect. Information on management and director compensation agreements will be found in the proxy statement and/or notes to the financial statements.

(The accuracy of estimates and assumptions used in preparing the financial statements) is incorrect. Estimates and assumptions used in preparing financial statements are found in the notes to the financial statements.

IFRS recommends that management commentary address the company's keyrelationships, resources, and risks, as well as the nature of the business, management's
objectives, the company's past performance, and the performance measures used.Securities regulators may impose requirements for publicly traded firms to address
certain topics in management's commentary, but accounting standards do not .

These are components of management commentary.

The balance sheet reports a company's financial position at a point in time. In contrast, theincome statement and the cash flow statement report a company's financial performanceover a reporting period .

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.

(the audit report) is incorrect. Audit reports express an opinion about the fair presentation of the financial statements.

(financial statement analysis) is incorrect. The role of financial statement analysis is to take the financial reports and evaluate the past, current, and prospective performance and financial position of a company for the purpose of making investment, credit, and other economic decisions .

Financial statement analysis refers to the use of information from a company's financial statements along with other information to make economic decisions regarding that company. Financial reporting refers to the reports and presentations that a company uses to show its financial performance to investors, creditors, and other interested parties. Financial reporting is a requirement for companies that are listed on public exchanges .

The balance sheet portrays the company’s financial position on a specified date. The income statement and statement of cash flows present different aspects of performance during the period.

Proxy statements contain information related to matters that come before shareholders for a vote, such as elections of board members .

The follow-up phase involves gathering information and repeating the analysis to determine whether it is necessary to update reports and recommendations.

The statements that the financial information was prepared according to GAAP should beincluded in the regular part of the auditors' report and not as an explanatory paragraph.The other information would be contained in explanatory paragraphs added to theauditors' report.

For publicly traded U.S. firms, the MD&A portion of the financial disclosure is required todiscuss results of operations, capital resources and liquidity and a general businessoverview based on known trends. A discussion of unusual or infrequent items may beincluded in the MD&A, but is not required .

Weak internal controls provide an opportunity for low-quality or even fraudulent financialreporting. A firm's management, not its board of directors, is responsible for ensuring theeffectiveness of a firm's internal controls. Under U.S. GAAP, auditors are required to statean opinion on a firm's internal controls.

The notes provide information that is essential to understanding the information provided in the primary statements.

The balance sheet represents information at a specific point in time. The income  statement represents information over a period of time .

Discussion of a firm's past performance and future outlook is most likely to be found inmanagement's commentary.

The balance sheet reports a company’s Financial position as of a specific date. The income statement, cash flow statement, and statement of changes in owners’ equity show the company’s performance during a specific period .

This is the role of financial reporting. The role of financial statement analysis is to evaluate the financial reports.

auditor will issue a qualified opinion if the financial statements make any exceptions to applicable accounting standards and will explain the effect of these exceptions in the auditor’s report .

Financial reporting refers to the way companies show their financial performance to investors, creditors, and other interested parties by preparing and presenting financial statements, including information about changes in a company's financial position. The role of financial statement analysis is to use the information in a company's financial statements, along with other relevant information, to make economic decisions, such as whether to invest in the company's securities or recommend them to other investors. Analysts use financial statement data to evaluate a company's past performance and current financial position in order to form opinions about the company's ability to earn profits and generate cash flow in the future .

The role of financial statement analysis is to use the information in a company's financialstatements, along with other relevant information, to make economic decisions. Examplesof such decisions include whether to invest in the company's securities or recommendthem to other investors, or whether to extend trade or bank credit to the company.Although the financial statements might provide indirect evidence about the managementskill of the company's executives, that is  not generally considered the role of financialstatement analysis .

Determining the suitability of an investment for a client is not one of the six steps in the Financial statement analysis framework. The analyst would only perform this function if he also had an advisory relationship with the client. Stating the objective and processing the data are two of the six steps in the framework. The others are gathering the data, analyzing the data, updating the analysis, and reporting the conclusions .

 A company’s profitability is best evaluated using the income statement. The income statement presents information on the financial results of a company’s business activities over a period of time by communicating how much revenue was generated and the expenses incurred to generate that revenue .

Corporate reports and press releases are written by management and are often viewed aspublic relations or sales materials. An analyst should review information on the economyand the company's industry and compare the company to its competitors. Thisinformation can be acquired from sources such as trade journals, statistical reportingservices, and government agencies. Securities and Exchange Commission (SEC) filingsinclude Form 8-K, which a company must file to report events such as acquisitions anddisposals of major assets or changes in its management or corporate governance andproxy statements, which are a good source of information about the election of (andqualifications of) board members, compensation, management qualifications, and theissuance of stock options.

Interim reports, either quarterly or semi-annual, contain updated information on a company’s performance and financial position since the last annual report.

(management discussion and analysis) is incorrect. The MD&A is part of the annual report and is not an update since the last annual report .

(proxy statements) is incorrect. Proxy statements contain information about matters that will be put to a vote at shareholders’ meetings .