Chapter 7, Reading the Financial Statements: The Auditors' Reports and Financial Statement Footnotes Video Solutions, Financial Statements Demystified

Problem 1

Which of the following are required to file annual reports on a Form $10-\mathrm{K}$ to the Securities and Exchange Commission?
a. Not-for-profit and governmental entities
b. Private companies
c. Public companies
d. All of the above

Puneet Prajapati

Numerade Educator

00:23

Problem 2

Annual reports to shareholders and annual reports filed with the SEC are one and the same.
a. True
b. False

Jeffrey Russell

Numerade Educator

01:08

Problem 3

Form $10-\mathrm{Ks}$ are confidential financial information and are not available to the public.
a. True
b. False

Willis James

Numerade Educator

Problem 4

Which of the following is the best opinion auditors can give a company on its financial statements?
a. An unqualified opinion
b. A qualified opinion
c. An adverse opinion
d. A disclaimer of opinion

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Problem 5

Auditors are allowed to give an opinion on the client's financial statements even if the auditors are not independent with respect to the client as long as that fact is fully disclosed.
a. True
b. False

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Problem 6

Auditor independence means the auditors:
a. Are not paid by the client but instead are paid by the federal government
b. Must maintain an objective, impartial, and unbiased attitude toward the client both in fact and in appearance
c. Automatically assume management is dishonest
d. Can own only immaterial (small) amounts of stock in an audit client

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Problem 7

A qualified audit opinion:
a. Is the worst opinion and means that the financial statements are not presented fairly in all material respects, not even a portion of them
b. Is no opinion because the auditors were unable to complete the audit
c. Means that except for the effects of not following GAAP or not being able to perform a key auditing procedure, the financial statements are presented fairly in all material respects
d. Means that under no circumstances should anyone rely on these financial statements.

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Problem 8

The Sarbanes-Oxley Act of 2002 applies only to public companies, not to private companies.
a. True
b. False

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Problem 9

Which of the following statements is true regarding materiality?
a. Auditors provide absolute assurance that all material errors and fraud are detected.
b. Materiality is defined as being at least 10 percent of assets.
c. The determination of what is material is up to the auditors.
d. Auditors provide reasonable assurance that all immaterial errors and fraud are detected.

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07:00

Problem 10

Footnotes to the financial statements:
a. Are required under GAAP
b. Are usually brief and insignificant
c. Are not audited by the auditors
d. Are required because of the materiality concept

Puneet Prajapati

Numerade Educator