Question

9. When analyzing financial statements, besides reviewing data year over year for comparisons, the analyst should also compare the data to_________________________________________

10. Give an example of “separation of duties “ in the accounting department of a small business _________________________________________________________________________________________________________________

11. Explain the meaning of “rationalization” with respect to internal control and the Fraud Triangle ________________________________________________________________________________________________________________

12. How can a business owner with very few employees implement internal controls? a. Due to small number of employees it is not feasible. b. Rotate job duties among employees. c. Hire a CPA to monitor transactions weekly.

13. The Debt to Equity ratio calculation measures a. The ability of the company to pay its’ current obligations b. The amount of Assets that are financed by debt c. The amount of capital invested by the owners relative to the debt of the company

14. The Earnings Quality ratio calculation measures how much of the net income is converted to cash. TRUE FALSE

Answer 1

9)

When analyzing Financial statement, besides reviewing data year over year for comparisons,the analyst should also compare the data to

Show each category of accounts on the Balance sheet as a percentage of the total account.

10)

Separation of duties is an internal control procedure adapted by a business.

Separation of duties in accounting department involves splitting responsibilities for book keeping,deposits,reporting and auditing.

For small business with only a few accounting employees,sharing responsibilities between two or more employees or reviewing of critical tasks by co-workers can serve the same purpose.

11)

Meaning of "rationalisation" with respect to Internal Control is that it is the continuous process to deliver the most effective and efficient controls to knock off afinancial reporting risk.

Meaning of "rationalisation" with respect to Fraud Triangle is the mindset of the fraudster that justifies them to commit fraud.

12)

Option C - Hire a CPA to monitor transactions weekly.

13)

Debt to Equity ratio is calculated by dividing a Company's total liabilities by it's share holders equity.The ratio is used to evaluate a Company's financial leverage.

So, Option b - the amount of assets that are financed by debt.

14)

The earnings quality ratio is one indicator which indicates to what extent the net income of a business satisfies quality criteria.

So, the statement in question is False.