Free CFA-Level-I Exam Braindumps (page: 487)

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When financial statements are presented that are not in conformity with generally accepted accounting principles, an auditor may express a Qualified Opinion Disclaimer of an Opinion

Qualified Opinion Disclaimer of an Opinion

  1. Yes No
    II. Yes Yes
    III. No Yes
    IV. No No
  2. II
  3. III
  4. I
  5. IV

Answer(s): C

Explanation:

Departures from GAAP may result in either a qualified or an adverse opinion. The auditor must exercise judgment as to the materiality of the departure. If the departure from GAAP is not sufficiently material to require an adverse opinion, the auditor should express a qualified opinion.



Companies A and B, similar in all respects, recently bought identical securities. However, using the "Management intent" rule, A has classified the securities as "trading" securities while B has categorized them as "available-for-sale" securities. Which of the following statements is/are true as a result of this difference?

  1. A and B will show same assets on their balance sheets.
    II. A will have a higher income volatility than B.
    III. A will have a higher cash flow volatility than B.
  2. II & III
  3. III only
  4. I & III
  5. I, II & III

Answer(s): D

Explanation:

Both "trading" and "available-for-sale" securities are reported at their fair market value on the balance sheet.
Hence, the reported assets for A and B are not affected by the different classifications. However, changes in the market value of trading securities are considered part of the Income statement while changes in the market value of available-for-sale securities are charged directly to the retained earnings account. This will cause a higher volatility in the income of A. Further, this higher volatility in income leads to a higher volatility in tax payments, thus causing a higher volatility in the cash flows.



Which would not be categorized as an unusual or infrequent item?

  1. provisions for environmental remediation
  2. gains or losses from disposal of a portion of a business segment
  3. restructuring costs
  4. gains or losses on qualifying early retirement of debt
  5. employee separation costs

Answer(s): D

Explanation:

Gains or losses on qualifying early retirement of debt is classified as an extraordinary item, not an unusual or infrequent item.



Compared with firms with capital leases, firms with operating leases generally report

  1. lower cash flow from operations.
  2. lower or higher cash flow from operations depending upon market interest rates.
  3. higher cash flow from operations.
  4. identical cash flow from operations.

Answer(s): A

Explanation:

The lease payment is an outflow in the CFO section.






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