FAC Module 3 Exam Questions with 100%
Correct Answers
Details relating to a company's revenue recognition policies are most likely found in:
Correct Answer Financial statement footnotes.
Which of the following is least likely a step in the financial statement analysis
framework? Correct Answer Forecasting data
A company's operating income is most useful in the analysis of: Correct Answer Its
underlying performance independent of the use of financial leverage.
Which of the following decisions least likely requires the analysis of financial
statements? Correct Answer Estimating the useful life of a noncurrent asset
An audit can most likely be described as: Correct Answer An independent review of the
company's financial statements.
Ratio analysis is most likely to be performed after which of the following steps in the
financial statement analysis framework? Correct Answer Collecting data
Information regarding material events and uncertainties is most likely found in: Correct
Answer Management Discussion & Analysis.
Information regarding inflation, future goals, material events, and uncertainties is found
in the Management Discussion & Analysis section.
An audit is most likely described as: Correct Answer An independent review of an
entity's financial statements.
Which of the following statements regarding a company's internal controls is most
accurate? Correct Answer Under U.S. GAAP, an auditor is also required to express an
opinion on the company's internal controls system.
The effectiveness of a company's internal controls system is the responsibility of
management.
The internal controls system seeks to ensure the reliability of the company's processes
of preparing financial statements.
If an auditor feels that a company's financial statements are not presented fairly or
significantly deviate from accounting standards, she will most likely issue a(n): Correct
Answer Adverse opinion.
,A qualified opinion is issued if the statements have been presented fairly, but do contain
exceptions to the accounting principles.
The auditor issues an unqualified opinion if the statements have been presented fairly.
A company's solvency most likely refers to its ability to: Correct Answer Meet its long-
term obligations.
If a user wants to know about the current position of a company's assets, she is most
likely to refer to the: Correct Answer Balance sheet.
Liquidity most likely refers to a company's ability to: Correct Answer Meet its short-term
obligations.
If an auditor believes that the financial statements materially depart from accounting
standards and are not presented fairly, she is most likely to issue a(n): Correct Answer
Adverse opinion.
If the auditor believes that the financial statements materially depart from accounting
standards and are not presented fairly, she will issue an adverse opinion.
Owners' equity is best described as: Correct Answer Owners' residual interest in the
assets of an entity after deducting its liabilities.
Financial data tables are an output of which of the following steps in the financial
statement analysis framework? Correct Answer Collecting data
Accounting standard boards should least likely: Correct Answer Let the decision-setting
process be compromised due to pressure from external forces.
Accounting standard boards should not let the decision-setting process be
compromised due to pressure from external forces.
Which of the following is least likely a desirable qualitative characteristic of financial
statements? Correct Answer Conciseness
Two fundamental qualitative characteristics of financial statements are relevance and
faithful representation. Other qualitative characteristics that enhance the value of
financial information are comparability, verifiability, timeliness, and understandability.
Which of the following statements regarding elements of the financial statements is
least likely?
The IFRS framework describes: Correct Answer Equity as being equal to capital
contributed by the owner.
, Equity includes owners' contributed capital as well as ending retained earnings. It can
also be described as the owners' residual interest in the assets of a company after
deducting all liabilities.
Which of the following is most likely a qualitative characteristic that enhances the value
of relevant and faithfully represented financial information? Correct Answer Timeliness
Faithful representation (a fundamental qualitative characteristic of financial reports)
requires financial information to be neutral, complete, and free from errors. The four
supplementary qualitative characteristics of financial statements are:
Comparability
Verifiability
Timeliness
Understandability
Which of the following is least likely a characteristic of an effective financial reporting
framework? Correct Answer Completeness
The characteristics of a coherent financial reporting framework are transparency,
comprehensiveness, and consistency. Completeness contributes to faithful
representation of financial information.
Which of the following approaches is adopted by the IASB? Correct Answer Principles-
based
Which of the following elements of financial statements is least likely related to the
measurement of performance? Correct Answer Assets
Income and expenses are related to the measurement of financial performance, while
assets, liabilities, and equity are related to the measurement of financial position.
Which of the following statements regarding the IASB is least accurate? Correct Answer
It has legal authority to enforce financial reporting requirements.
The IASB is responsible for the creation of accounting standards; it is not a regulatory
authority.
Which of the following is least likely an objective of the International Organization of
Securities Commission (IOSCO)? Correct Answer To reduce unsystematic risk
One of the objectives of IOSCO is to reduce systematic risk.
Form DEF-14A is most likely for which of the following purposes? Correct Answer To
provide information regarding proposals that require a shareholder vote
Correct Answers
Details relating to a company's revenue recognition policies are most likely found in:
Correct Answer Financial statement footnotes.
Which of the following is least likely a step in the financial statement analysis
framework? Correct Answer Forecasting data
A company's operating income is most useful in the analysis of: Correct Answer Its
underlying performance independent of the use of financial leverage.
Which of the following decisions least likely requires the analysis of financial
statements? Correct Answer Estimating the useful life of a noncurrent asset
An audit can most likely be described as: Correct Answer An independent review of the
company's financial statements.
Ratio analysis is most likely to be performed after which of the following steps in the
financial statement analysis framework? Correct Answer Collecting data
Information regarding material events and uncertainties is most likely found in: Correct
Answer Management Discussion & Analysis.
Information regarding inflation, future goals, material events, and uncertainties is found
in the Management Discussion & Analysis section.
An audit is most likely described as: Correct Answer An independent review of an
entity's financial statements.
Which of the following statements regarding a company's internal controls is most
accurate? Correct Answer Under U.S. GAAP, an auditor is also required to express an
opinion on the company's internal controls system.
The effectiveness of a company's internal controls system is the responsibility of
management.
The internal controls system seeks to ensure the reliability of the company's processes
of preparing financial statements.
If an auditor feels that a company's financial statements are not presented fairly or
significantly deviate from accounting standards, she will most likely issue a(n): Correct
Answer Adverse opinion.
,A qualified opinion is issued if the statements have been presented fairly, but do contain
exceptions to the accounting principles.
The auditor issues an unqualified opinion if the statements have been presented fairly.
A company's solvency most likely refers to its ability to: Correct Answer Meet its long-
term obligations.
If a user wants to know about the current position of a company's assets, she is most
likely to refer to the: Correct Answer Balance sheet.
Liquidity most likely refers to a company's ability to: Correct Answer Meet its short-term
obligations.
If an auditor believes that the financial statements materially depart from accounting
standards and are not presented fairly, she is most likely to issue a(n): Correct Answer
Adverse opinion.
If the auditor believes that the financial statements materially depart from accounting
standards and are not presented fairly, she will issue an adverse opinion.
Owners' equity is best described as: Correct Answer Owners' residual interest in the
assets of an entity after deducting its liabilities.
Financial data tables are an output of which of the following steps in the financial
statement analysis framework? Correct Answer Collecting data
Accounting standard boards should least likely: Correct Answer Let the decision-setting
process be compromised due to pressure from external forces.
Accounting standard boards should not let the decision-setting process be
compromised due to pressure from external forces.
Which of the following is least likely a desirable qualitative characteristic of financial
statements? Correct Answer Conciseness
Two fundamental qualitative characteristics of financial statements are relevance and
faithful representation. Other qualitative characteristics that enhance the value of
financial information are comparability, verifiability, timeliness, and understandability.
Which of the following statements regarding elements of the financial statements is
least likely?
The IFRS framework describes: Correct Answer Equity as being equal to capital
contributed by the owner.
, Equity includes owners' contributed capital as well as ending retained earnings. It can
also be described as the owners' residual interest in the assets of a company after
deducting all liabilities.
Which of the following is most likely a qualitative characteristic that enhances the value
of relevant and faithfully represented financial information? Correct Answer Timeliness
Faithful representation (a fundamental qualitative characteristic of financial reports)
requires financial information to be neutral, complete, and free from errors. The four
supplementary qualitative characteristics of financial statements are:
Comparability
Verifiability
Timeliness
Understandability
Which of the following is least likely a characteristic of an effective financial reporting
framework? Correct Answer Completeness
The characteristics of a coherent financial reporting framework are transparency,
comprehensiveness, and consistency. Completeness contributes to faithful
representation of financial information.
Which of the following approaches is adopted by the IASB? Correct Answer Principles-
based
Which of the following elements of financial statements is least likely related to the
measurement of performance? Correct Answer Assets
Income and expenses are related to the measurement of financial performance, while
assets, liabilities, and equity are related to the measurement of financial position.
Which of the following statements regarding the IASB is least accurate? Correct Answer
It has legal authority to enforce financial reporting requirements.
The IASB is responsible for the creation of accounting standards; it is not a regulatory
authority.
Which of the following is least likely an objective of the International Organization of
Securities Commission (IOSCO)? Correct Answer To reduce unsystematic risk
One of the objectives of IOSCO is to reduce systematic risk.
Form DEF-14A is most likely for which of the following purposes? Correct Answer To
provide information regarding proposals that require a shareholder vote
