Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

23 Cards in this Set

  • Front
  • Back
What is the nature of the audit report?
It is an independent review of a company's financial statement, the review allows an auditor to provide an opinion on the financial statements
What composes an auditors opinion?
the opinion contains three parts:
1. the statements are prepared by management and is their responsibility, the auditor prepares an independent review
2. generally accepted auditing standards were used, providing reasonable assurance of no material errors
3. GAAP was used in financial statement preparation and are reasonable, additional explanation when accounting practices have not been used consistently
An unqualified opinion audit report states what?
the auditor is satisfied the statements are free from material omissions and errors
A qualified opinion audit report states what?
the auditor beleives the statements make exceptions to accounting principles,
An adverse opinion audit report states what?
the auditor believes the statements are not presented fairly, or are noncorming with accounting practices
Under GAAP, what is the auditors responsibility regarding internal controls?
the auditor must provide an opinion, providing the opinion either separately or as the fourth element in the standard auditors opinion
Regarding audit reports and internal controls, under the Sarbanese Oxley Act what are the elements management must follow when providing the report?
1. Statement of Responsibility: management is responsible for implentation and maintenance of internal controls
2. Description: of evaluation of internal controls
3. Assessment: effectiveness of the most recent year
4. Statement of Assessment: the report has been assessed by auditors
5. Statement of Certification: the report has been presented fairly
What information is contained in the footnotes of financial statements?
disclosures off information providing further details, improves assessments of amounts, timing, and uncertainty of estimates reported
What are the elements of financial statement footnotes?
1. accounting standards, assumptins, estimations
2. are audited
3. business acquisitions or disposals, legal actions, employee benefit plans, contingencies, significant customers, sales to related parties, segments of the firm
What are additional disclosures provided by the supplemental schedules?
1. Operating income or sales by region or business segment
2. Reserves for an oil and gas company
3. Information about hedging activities and financial instruments
4. Not audited
What is the purpose of the Management Discussion and Analysis?
provides an assessment of a company's financial performance and condition from the perspective of management
What is the MD&A required to report?
1. results from operation, trends in sales and expenses
2. Capital resources, liquidity, trends in cash flows
3. general business overview based on known trends
The MD&A can also include what topics?
1. accounting requiring judgements by management
2. significant effects of trends, events, and uncertainties
3. liquidity and capital resource issues
4. discontinued operations
5. extensive disclosures in interim financial statements
6.disclosures of a segments need for cash flow, contributions to revenue or profit
What is the purpose of proxy statements?
issued to shareholders on matters that require a vote
What information is provided in the proxy statement?
provides information about the election, qualification, and compensation of board members, including management, and the issuance of stock options
What are the six steps of the financial statement analysis framework?
1. State the objective and context
2. Gather data
3. Process data
4. Analyze and interpret the data
5. Report the conclusions or recommendations
6. Update the analysis
What is the objective of the FSA framework step one: state the objective and context?
determine the questions, seek answers, presentation, resources and time
What is the objective of the FSA framework step two: gather data?
acquire company's financial statements, find relevant data on economy and industry, question management, suppliers, and customers, visit company sites
What is the objective of the FSA framework step three: process the data?
adjust financial statements, calculate ratios, prepare exhibits, graphs, and common size balance sheets
What is the objective of the FSA framework step four: Analyze and interpret the data
use the data to answer questions from the first step, decide the conclusions supported by the information
What is the objective of the FSA framework step five: Report the conclusions or recommendations?
prepare and commmunicate report, make sure report complies with code and standards
What is the objective of the FSA framework step six: update the analysis
repeat steps periodically, change conclusions when necessary
What is the basic equation underlying the income statement?
Revenue - Expense = Net Income