Compliance and Auditing Financial Reporting Compliance 2

Question 1

What is 'fair value accounting' and when is it required under US GAAP?

Accepted Answer

Measuring assets and liabilities at their current market value as required by specific GAAP standards

Answer

Fair value accounting measures assets and liabilities at the price that would be received to sell an asset or paid to transfer a liability in an orderly market transaction, required by standards like ASC 820.

Question 2

Which type of audit opinion is issued when a company's financial statements contain a material departure from GAAP?

Accepted Answer

Adverse opinion

Answer

An adverse opinion is issued when the auditor concludes that the financial statements are materially misstated and do not present fairly in accordance with GAAP, indicating the statements are unreliable.

Question 3

What are 'related party transactions' and why do they require special disclosure?

Accepted Answer

Transactions between the company and entities with which it has a special relationship, requiring disclosure due to potential conflicts of interest

Answer

Related party transactions involve dealings between a company and entities with special relationships (executives, major shareholders, affiliates) that may not be at arm's length and require disclosure under GAAP to alert users to potential conflicts of interest.

Question 4

What is a 'going concern' opinion and what does it signal to investors?

Accepted Answer

An auditor's conclusion that there is substantial doubt about the company's ability to continue as a going concern

Answer

A going concern opinion is issued when auditors have substantial doubt about whether a company can continue operations for the next 12 months based on financial conditions and other factors.

Question 5

Which SEC regulation requires companies to disclose significant events within four business days?

Accepted Answer

Form 8-K

Answer

Form 8-K must be filed with the SEC within four business days of significant corporate events such as material agreements, leadership changes, bankruptcy filings, or restatements.

Compliance and Auditing Practice Test

Compliance and Auditing Practice Test

Compliance and Auditing Financial Reporting Compliance 2