Chapter 01
The Economic and Institutional Setting for Financial Reporting
True / False Questions
1. The type of analysis that uses financial statements along with industry and macroeconomic
data to forecast future stock movements is technical analysis.
True False
2. The best source of information about a company's current health and prospects for the future
is the company's financial statements.
True False
3. One factor that considerably affects the ease with which users employ financial reports is that
accounting is an exact science.
True False
,4. All economic events and activities that affect a company are reflected in a company's
financial statements.
True False
5. Investors are uncertain about the quality of each company's debt or equity offerings because
the ultimate return from the security depends on the company's past performance which is
difficult to accurately measure.
True False
6. Investors are uncertain about the quality of each company's debt or equity offerings because
the ultimate return from the security depends on future events.
True False
7. Taxing authorities sometimes use financial statement information as a basis for establishing
tax rules to match accounting rules.
True False
8. Investors use financial statements as an analytical tool.
True False
,9. Sales value of a company's assets minus its debt owed is a company's liquidation value.
True False
10. The ability to raise additional cash by selling assets, issuing stock, or borrowing more is
financial flexibility.
True False
11. Information symmetry means that management has access to more and better information
about the business than do people outside the company.
True False
12. Contracts often contain language that refers to financial statement numbers.
True False
13. Investors who follow a fundamental analysis approach determine the value the company's
assets would yield if sold individually.
True False
14. Companies judged to be high credit risks may be subject to loan covenants.
True False
, 15. Security analysts are among the most important users of financial statements.
True False
16. Because financial fraud is rare, investors and other users of financial statements can safely
accept the numbers in financial statements at face value.
True False
17. The SEC passed Regulation Fair Disclosure (Reg FD) to ensure that financial statement
users have access to all the financial information they need to make decisions.
True False
18. Regulators of industries granted monopoly privileges use financial statement data in setting
allowable charges for the services these industries provide.
True False
19. All financial statements provide a basis for what might occur in the future.
True False
The Economic and Institutional Setting for Financial Reporting
True / False Questions
1. The type of analysis that uses financial statements along with industry and macroeconomic
data to forecast future stock movements is technical analysis.
True False
2. The best source of information about a company's current health and prospects for the future
is the company's financial statements.
True False
3. One factor that considerably affects the ease with which users employ financial reports is that
accounting is an exact science.
True False
,4. All economic events and activities that affect a company are reflected in a company's
financial statements.
True False
5. Investors are uncertain about the quality of each company's debt or equity offerings because
the ultimate return from the security depends on the company's past performance which is
difficult to accurately measure.
True False
6. Investors are uncertain about the quality of each company's debt or equity offerings because
the ultimate return from the security depends on future events.
True False
7. Taxing authorities sometimes use financial statement information as a basis for establishing
tax rules to match accounting rules.
True False
8. Investors use financial statements as an analytical tool.
True False
,9. Sales value of a company's assets minus its debt owed is a company's liquidation value.
True False
10. The ability to raise additional cash by selling assets, issuing stock, or borrowing more is
financial flexibility.
True False
11. Information symmetry means that management has access to more and better information
about the business than do people outside the company.
True False
12. Contracts often contain language that refers to financial statement numbers.
True False
13. Investors who follow a fundamental analysis approach determine the value the company's
assets would yield if sold individually.
True False
14. Companies judged to be high credit risks may be subject to loan covenants.
True False
, 15. Security analysts are among the most important users of financial statements.
True False
16. Because financial fraud is rare, investors and other users of financial statements can safely
accept the numbers in financial statements at face value.
True False
17. The SEC passed Regulation Fair Disclosure (Reg FD) to ensure that financial statement
users have access to all the financial information they need to make decisions.
True False
18. Regulators of industries granted monopoly privileges use financial statement data in setting
allowable charges for the services these industries provide.
True False
19. All financial statements provide a basis for what might occur in the future.
True False
