Chapter 3

Question 1

What are cash equivalents?

Answer 1

Equivalent instruments with maturity dates of less than three months from the date of purchase

Question 2

What is the summary of significant accounting policies?

Answer 2

Conveys valuable information about a company’s choices from among various alternative accounting methods

Question 3

What are subsequent events?

Answer 3

Occurs after a company’s fiscal year end but before the financial statements are issued

Question 4

What is the purpose of the auditor’s report?

Answer 4

Provides final statement user with an independent and professional opinion about fairness of the representation in the financial statements, effectiveness of internal controls, and whether or not the financial statements are in conformity with GAAP

Question 5

What is a qualified opinion?

Answer 5

Contains an exception to the standard unqualified opinion

Question 6

What is an adverse opinion?

Answer 6

Results from (a) nonconformity with GAAP and (b) inadequate disclosures

Question 7

What is a disclaimer?

Answer 7

Results from limitation or restriction of the scope of the examination

Question 8

What is a proxy statement?

Answer 8

Contains disclosures on compensation to directors and executives

Question 9

What is risk analysis?

Answer 9

Analysis that is used to gain a glimpse of the future from the past and present data using various tools and techniques

Question 10

What is horizontal analysis?

Answer 10

Expressing each item as a percentage of that same item in the financial statements of another year

Question 11

What is vertical analysis?

Answer 11

The expression of each item in the financial statements as a percentage of an appropriate corresponding total but within the same year

Question 12

When must an enterprise report information about major customers?

Answer 12

If 10% or more of the revenue of an enterprise is derived from transactions with a single customer. the facts must be disclosed by the company