Question

1. The audit committee reports directly to the

external auditor.

board of directors.

internal auditor.

chief executive officer.

2. The treasurer of a company is responsible for

identifying areas where a firm might incur substantial losses.

preparing financial statements for the annual report.

making sure a firm has adequate cash available.

managing a firm’s risk exposure in financial and commodity markets.

3. Which of the following is an example of frivolous agency costs?

Providing lunch for the employees.

Excessive perks.

Hiring external auditors to certify accounting statements despite having internal auditors.

Investment in Land & Buildings.

4. What is a mission or vision statement?

Management’s plan for the year

Statement of a firm’s main reason for being

To be the best

Written by the firm’s founders’ and is never changed

5. Why is a mission statement important to a firm?

It is updated annually whenever management wants to pursue a new idea to communicate the plan to investors.

It is a necessary part of loan applications.

Managers should support the mission with appropriate operating plans.

It gives investors insight into the risk/expected return trade-off for the firm.

6. In what ways does a limited partnership differ from a corporation?

Limited liability of owners

Taxation

Ease of start-up

Some owners do not participate in the day-to-day operations of the firm

7. Which of the following suffers from double taxation of dividends?

General partnership

Limited partnership

Corporation

Limited liability company

8. Which of the following is usually not found in the annual report?

Income statement

Statement of cash flows

Disclosure of the names of major customers

Discussion of current and future business opportunities

9. The main difference between the accounting and a financial perspective of a firm’s operations is that the financial perspective does which of the following?

Focuses on cash flows

Is historical in nature

Tracks assets and depreciates them over time according to set techniques

Focuses on firm profits

10. What combination of income statements and balance sheets is needed to create the statement of cash flows?

Two most recent balance sheets and most recent income statement

Most recent balance sheet and income statement

Two most recent income statements and most recent balance sheet

Two most recent income statements and two most recent balance sheets

Answer 1

1. The Audit reports to the

A. Board of Directors

Internal auditors are hired by the company, while external auditors are appointed by a shareholder vote and they report to shareholders. CEO manages the organisation and reports to the board of director

2. The treasurer of the company is responsible for

A. Making sure a firm has adequate cash available

The finance manager is responsible for making financial statements.

A cost accountant would identifying areas where a firm might incur substantial losses

A risk manager manages a firm’s risk exposure in financial and commodity markets

3. Frivolous Agency Costs

A. Excessive Perks are frivolous agency costs

Providing luch to employees may be a employee welfare cost

External audit is an essential role and has to be paid for

Investment in land and building is a capital investment. It yields long term returns

4.Vision or mission statement is

A. Statement of firms main reason for being

Managements plan for the year is often the budget

To be the best is not always a mission statement. Some organisations may have it, others have different vision/ missions

Many a times vision statement is written by founder, but not always