Chapter 17
Multiple Choice
1. Footnotes to financial statements should not be used to
2. Assuming that none of the following have been disclosed in the financial statements, the most
appropriate item for footnote disclosure is the
3. The primary responsibility for the adequacy of disclosure in the financial statements and
footnotes rests with the
4. Which of the following situations would require adjustment to or disclosure in the financial
statements?
5. With respect to disclosure, the unqualified short-form audit report
6. Which of the following should be disclosed in the Summary of Significant Accounting Policies?
7. An Account Principles Board Opinion was concerned with disclosure of accounting policies. A
singular feature of this particular opinion is that it
8. Significant accounting policies may not be
9. The stock of Gates, Inc., is widely held, and the company is under the jurisdiction of the
Securities and Exchange Commission. In the annual report, information about the significant
accounting policies adopted by Gates should be
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10. The basic purpose of the securities laws of the United States is to regulate the issue of investment
securities by
11. The Securities and Exchange Commission (SEC) was established in1934 to help regulate the U.S.
securities market. Which of the following statements is true concerning the SEC?
12. One of the major purposes of federal security regulation is to
13. Under the Securities Act of 1933, subject to some exceptions and limitations, it is unlawful to use
the mails or instruments of interstate commerce to sell or offer to sell a security to the public
unless
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14. Major, Major, and Sharpe, CPA’s, are the auditors of MacLain industries. In connection with the
public offering of $10 million of MacLain securities, Major expressed an unqualified opinion as
to the financial statements. Subsequent to the offering, certain misstatements and omissions are
revealed. Major has been sued by the purchasers of the stock offered pursuant to the registration
statement, which include the financial statements audited by Major. In the ensuing lawsuit by the
MacLain investors, Major will be able to avoid liability if
15. A major impact of the Foreign Corrupt Practices Act of 1977 is that registrants subject to the
Securities Exchange Act of 1934 are now required to
16. The Securities and Exchange Commission’s fraud rule prohibits trading on the basis of inside
information of a business corporation’s stock by
17. A CPA is subject to a criminal ability if the CPA
18. For interim financial reporting, an inventory loss from a temporary market decline in the first
quarter which can reasonably be expected to be restored in the fourth quarter
19. An inventory loss from a market decline occurred in the first quarter that was not expected to be
restored in the fiscal year. For interim financial reporting purposes, how would the dollar amount
of inventory in the balance sheet be affected in the first and fourth quarters?
First Quarter Fourth Quarter
20. Footnotes to a company’s financial statements are used to
21. The statement that “the financial statements were prepared in accordance with generally accepted
accounting principles” is found in the
22. According to the disclosure requirements outlined in Statement of Accounting Concepts No. 5, the
following is an example supplementary information that should be disclosed because it affects an
area that is directly affected by existing FASB Standards
23. Norris Company settled a lawsuit in February for an amount that was significantly different from
the amount that was originally accrued as an estimate of potential loss. The company’s yearend
is December 31 and its financial statements are issued in March. This is an example of
24. Footnote disclosure that summarizes information that does not meet the measurement and
reporting requirements for presentation in a company’s financial statements, but is useful to
informed readers, is required in order to meet the concept of
25. The inclusion of MD&A (Management Discussion and Analysis) in annual reports is required by
the
26. Which SEC reporting form is the normal registration statement for securities to be sold to the
public?
27. The Sarbanes-Oxley (SOX) Act of 2002 created the PCAOB. The PCAOB
28. A disclaimer of opinion is issued when
29. The discrete view of interim reporting
30. The Securities act of 1933
31. The Sarbanes-Oxley (SOX) Act of 2002 created the PCAOB. The PCAOB
Essay
1. List the building blocks to disclosure described in SFAC No. 5.
2. List and discuss the types of information commonly disclosed in the footnotes to corporate
financial statements.
3. List and discuss the recognition criteria for the two types of subsequent events.
4. List and discuss the three paragraphs contained in a standard unqualified audit option.
5. List and discuss the circumstances that might cause an auditor to issue each of the various types
of audit opinions.
6. In April 2013, the FASB issued Accounting Standards Update 2013-07, Presentation of Financial
Statements (Topic 205): Liquidation Basis of Accounting.
7.
8. What information is required to be included in the MD & A section of the 10-K annual report?
(Do not include the information required by item 7a)
9. Define market risk and the types of market risk to be disclosed in item &a of a company’s
MD&A.
10. How is the quantitative information about market risk–sensitive instruments to be disclosed
according to the SEC?
11. What are the purposes of the letter to stockholders?
12. List and explain the three types of financial analysts.
13. Discuss the general purposes of:
14. Discuss three general provisions of the Sarbanes-Oxley Act.
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15. Discuss the general requirements of Sections 404(a) and 404(b) of the Sarbanes-Oxley Act.
16. Discuss the framework for analysis that may be used in the resolution of ethical dilemmas.
17. List the six criteria identified by the Anderson report and are indicative of effective auditor
performance.
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18. List the four sections of the AICPA Code of Professional Conduct.