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Chap.2 - Chapter 2 Introduction to Financial Statements and...

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Chapter 2 Introduction to Financial Statements and Other Financial Reporting Topics QUESTIONS 2-1. a. Unqualified opinion with explanatory paragraph b. Unqualified opinion with explanatory paragraph c. Unqualified opinion d. Adverse opinion e. Qualified opinion 2-2. The responsibility for the preparation and integrity of financial statements rests with management. The auditor simply examines them for fairness, conformity with GAAP, and consistency. 2-3. The basic purpose of the integrated disclosure system is to achieve uniformity between annual reports and SEC filings. It is hoped that this will improve the quality of disclosure and lighten the disclosure load for the companies reporting. 2-4. The explanatory paragraphs explain important considerations of which the reviewer of the financial statements should be aware. An example would be a doubt as to going concern ability. 2-5. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an examination in accordance with generally accepted auditing standards. 2-6. No. The accountant’s report will indicate that they are not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles, and the report will indicate departures from generally accepted accounting principles. The accountant does not express an opinion on reviewed financial statements. 2-7. The accountant does not express an opinion or any other form of assurance with a compilation. 2-8. No. Some statements have not been audited, reviewed, or compiled. These statements are presented without being accompanied by an accountant’s report. 22
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2-9. Balance Sheet The purpose of a balance sheet is to show the financial position of an accounting entity as of a particular date. Income Statement The income statement summarizes the results of operations for an accounting period. Statement of Cash Flows The statement of cash flows details the inflows and outflows of cash during a specified period of time. 2-10. Notes reported information such as increase the full disclosure of the statements by providing additional information on inventory and depreciation methods, subsequent events, contingent liabilities, etc. 2-11. Contingent liabilities are dependent on an occurrence to determine if payment will be necessary. Liabilities from lawsuits are dependent on the outcome of the cases; they therefore represent contingent liabilities.
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