The Balance Sheet and Financial Disclosures

7469 words 30 pages
Chapter 3 The Balance Sheet and Financial Disclosures

Questions for Review of Key Topics

Question 3-1

The purpose of the balance sheet, also known as the statement of financial position, is to present the financial position of the company on a particular date. Unlike the income statement, which is a change statement that reports events occurring during a period of time, the balance sheet is a statement that presents an organized array of assets, liabilities, and shareholders’ equity at a point in time. It is a freeze frame or snapshot picture of financial position at the end of a particular day marking the end of an accounting period.

Question 3-2

The balance sheet does not portray the
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Question 3-14

The discussion provides management’s views on significant events, trends and uncertainties pertaining to the company’s (a) operations, (b) liquidity, and (c) capital resources. Certainly the Management Discussion and Analysis section may be slanted to management’s biased perspective and therefore can lack objectivity. However, management can offer an informed insight that might not be available elsewhere, so if the reader maintains awareness of the information’s source, it can offer a unique view of the situation.

Question 3-15

Depending on the circumstances, the auditor will issue a (an):
1. Unqualified opinion – The auditors are satisfied that the financial statements “present fairly” the financial position, results of operations, and cash flows and are “prepared in accordance with generally accepted accounting principles.”
2. Qualified opinion – This contains an exception to the standard unqualified opinion, but not of sufficient seriousness to invalidate the financial statements as a whole. Examples of exceptions are (a) unconformity with generally accepted accounting principles, (b) inadequate disclosures, and (c) a limitation or restriction of the scope of the examination.
3. Adverse opinion – This is necessary when the exceptions are so serious that a qualified opinion is not justified. Adverse


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