FInancial accounting cours 8

Question 1

What is the process of preparing the f/s (financial statement) and issuing the annual report?

Answer 1

1) F/S prepared by the management.
2) Independent auditor’s audit of F/S.
3) Distribution of F/S and annual report to users.

Question 2

What is the role of company management?

Answer 2

• Responsible for the preparation of the financial statements.
• Ensures the reliability of financial information.
• They ensure the quality, relevance, and completeness of information useful for decision-making.

Question 3

What does an independent auditor do?

Answer 3

They express their opinion on the financial statements of the company being audited.

Question 4

What is the main role of an independent auditor?

Answer 4

To lend credibility to the financial statements prepared by management.

Question 5

Do independent auditors guarantee the accuracy of the information of the F/S?

Answer 5

No, they only give their opinion.

Question 6

What is the board of directors?

Answer 6

• A group of people who represent the interests of the shareholders of a company or organization.
• They are elected by the shareholders.
• They can be the company’s management, shareholders, or directors.

Question 7

What is the role of the board of directors?

Answer 7

• Provides guidance and advice to members of the company’s management team.
• Monitors management.

Question 8

What is the audit committee?

Answer 8

• It is composed of members of the Company’s board of directors.
• The member of the Audit Committee are independent and have no relationship that could reasonably interfere with their judgment.

Question 9

What is the audit committee doing once the financial statements have been audited by the independent auditor?

Answer 9

The audit committee approves the financial statements and their publication.

Question 10

What is the form of the statement of a publicly traded company? Which accounting principle corresponds to that characteristic?

Answer 10

They are consolidated financial statements. They respect the substance over the form principle.

Question 11

What is vertical analysis?

Answer 11

• The vertical analysis is performed on the items of the SFP and of the SPL.
• Vertical analysis allow for the analysis of the relative importance of one figure concerning another.
• Vertical analysis items are percentages.

Question 12

Describe the vertical analysis in the SFP and the SPL.

Answer 12

• In the SPL, the percentage is normally calculated with sales. Sales represent 100%.
• In the SFP, the percentage is calculated with total assets. Total assets represent 100%.

Question 13

What is horizontal analysis?

Answer 13

• Horizontal analysis consists in comparing the same item over 2 different periods.
• This analysis makes it possible to evaluate the percentage change in the items studied over different periods.
• It allows evaluating the growth or the decrease of the studied items.
• It will help determine the change in items for the SFP and the SPL.

Question 14

What is the formula to calculate the variation of each item with the horizontal analysis?

Answer 14