CFM Financial Statements & Reporting 2 — Questions and Answers
Question 1: What type of audit opinion indicates that financial statements are presented fairly in all material respects?
- Qualified opinion
- Adverse opinion
- Disclaimer of opinion
- Unqualified (clean) opinion (Correct answer)
Correct answer: Unqualified (clean) opinion
An unqualified or clean opinion from auditors means the financial statements are presented fairly in accordance with applicable accounting standards.
Question 2: Which US GAAP standard governs the recognition of revenue from contracts with customers?
- ASC 606 (Correct answer)
- ASC 842
- ASC 815
- ASC 350
Correct answer: ASC 606
ASC 606 establishes a five-step model for revenue recognition from contracts with customers, replacing earlier industry-specific guidance.
Question 3: In financial reporting, what is 'materiality'?
- The physical existence of an asset
- The threshold above which information could influence users' decisions (Correct answer)
- The requirement to disclose all transactions
- The cost of preparing financial statements
Correct answer: The threshold above which information could influence users' decisions
Materiality refers to the significance of an item; information is material if its omission or misstatement could influence the economic decisions of users.
Question 4: What does goodwill on the balance sheet represent?
- The fair value of patents and trademarks
- The premium paid above the fair value of net assets in an acquisition (Correct answer)
- Customer relationships recorded separately
- The book value of all intangible assets
Correct answer: The premium paid above the fair value of net assets in an acquisition
Goodwill represents the excess purchase price paid over the fair value of identifiable net assets acquired in a business combination.
Question 5: Under ASC 842, how are most operating leases now recorded on the lessee's balance sheet?
- Off-balance-sheet as footnote disclosures only
- As a right-of-use asset and a corresponding lease liability (Correct answer)
- As prepaid expenses only
- As long-term debt only
Correct answer: As a right-of-use asset and a corresponding lease liability
ASC 842 requires lessees to recognize a right-of-use asset and a corresponding lease liability on the balance sheet for most operating leases.
Question 6: Which financial ratio measures how efficiently a company collects its receivables?
- Current ratio
- Inventory turnover
- Days sales outstanding (DSO) (Correct answer)
- Debt-to-equity ratio
Correct answer: Days sales outstanding (DSO)
Days Sales Outstanding measures the average number of days it takes a company to collect payment after a sale has been made.
CFM Financial Statements & Reporting 2
What type of audit opinion indicates that financial statements are presented fairly in all material respects?