QUESTION: 2033

A financial auditor's report is required to:

make sure that no fraudulent activity is occurring with the accounting systems.
II. provide reasonable assurance that there are no material errors in the statements.
III. attest to the fact that the auditor has performed adequate testing on the company's accounting system to ensure that the financial reporting is accurate.
IV. state an opinion about the controls and checks present in the firm's reporting procedures.
I & IV
I, III & IV
I, II & III
II & III

Answer(s): D

Explanation:

IV is usually reported to management but not in the audit report. Also, a financial auditor, would, in the course of her audit, check for material misstatements but is not responsible for unearthing fraudulent activities.

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QUESTION: 2034

Accounting Standards are best described as

the state-of-the-art presentation of the science of accounting.
presentation standards mandated by the Securities and Exchange Commission.
the result of a political process among groups with diverse interests.
measuring the quality of stewardship.

Answer(s): C

Explanation:

Accounting standards have been through a long development process and are subject to continual innovation, modification, and change. Currently, the Financial Accounting Standards Board (FASB), composed of seven full-time paid members, functions as the standard-setting body of the accounting profession.

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QUESTION: 2035

A firm using LIFO accounting has a LIFO reserve of 900, with a LIFO ending inventory of 8,100. It is currently in the 40% tax bracket. If it switches to FIFO accounting, which of the following is true?

Its ending FIFO inventory equals 7,200
II. Its deferred taxes decrease by 360
III. Its equity increases by 540
III only
I & III
II & III
I, II & III

Answer(s): A

Explanation:

LIFO Reserve = FIFO Ending inventory value - LIFO Ending inventory value Therefore, the ending inventory under FIFO = 8,100 + 900 = 9,000. The deferred taxes increase by 900*0.4 = 360 and the equity increases by 900*(1-0.4) = 540.

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QUESTION: 2036

Which of the following is/are true under accrual accounting?

Expenses are recognized as services are used.
II. Revenues are recognized when service is performed.
III. Cash outflows determine expense recognition.
II & III
I & II
I & III
I, II & III

Answer(s): B

Explanation:

With accrual accounting expenses are recognized when they are incurred, not when the cash is disbursed.

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Free CFA-Level-I Exam Braindumps (page: 509)

QUESTION: 2033

Explanation:

QUESTION: 2034

Explanation:

QUESTION: 2035

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QUESTION: 2036

Explanation: