Financial Statements Quiz

Why do investment analysts typically want to see a company's financial statements?

• To evaluate the business's competitive strategies

• To assess the ability of the company to pay taxes

• To determine the company's credit rating

• To decide whether to recommend the company's securities to clients

Why might a union request financial statements from a business?

• To evaluate the business's competitive strategies

• To determine the creditworthiness of the business

• To assess the ability to pay compensation and benefits to union members

• To decide whether to invest in the business

When will the reported results in financial statements be suspicious, potentially due to fraud from the below mentioned cases?

• When the results are consistent with industry norms.

• When there is a sudden spike in sales.

• When the statements are audited.

• When non-financial issues are addressed.

What is a key difference between US GAAP and IFRS regarding the treatment of research and development costs?

• US GAAP capitalizes all research and development costs and IFRS expenses all research and development costs.

• US GAAP expenses all research and development costs and IFRS capitalizes all research and development costs.

• Both US GAAP and IFRS expense all research and development costs.

• Both US GAAP and IFRS expense research and development costs, however; IFRS capitalizes development costs in certain situations.

What happens to the values of assets and liabilities in the balance sheet when financial statements are not adjusted for inflation?

• They appear inordinately high.

• They appear inordinately low.

• They remain unchanged.

• They become irrelevant.

What is the primary purpose of employee's interest in reviewing the financial statements of their current company?

• To help employees assess the ability of the enterprise to provide remuneration

• To determine the business's credit rating

• To involve employees in the financial decision-making process

• To help employees decide whether to buy company securities

Why are financial statements of different companies not always comparable?

• They lack auditors' opinions.

• They use different accounting practices.

• They have not been verified.

• They do not cover non-financial issues.

Why financial statements might underestimate the value of a business, for instance for startups with intellectual property?

• They do not account for inflation.

• They do not include tangible assets.

• They immediately expense intangible asset expenditures and do not record them as assets.

• They only cover a specific period of time.

Which users of the financial statements read the financials to understand the profitability, liquidity, and cash flows of the organization?

• Company Management

• Competitors

• Customers

• Employees

Which of the following should be disclosed in a summary of significant accounting policies?

• A. Basis of consolidation.

• B. Concentration of credit risk of financial instruments.

• C. Composition of plant assets.

• D. Adequacy of pension plan assets in relation to vested benefits.