CHAPTER 1
FINANCIAL STATEMENT ANALYSIS: AN INTRODUCTION
SOLUTIONS
1. B is correct. This is the role of financial reporting. The role of financial statement analysis is to evaluate the financial reports.
2. A is correct. The balance sheet portrays the current financial position. The income statement and statement of cash flows present different aspects of performance.
3. B is correct. Profitability is the performance aspect measured by the income statement. The balance sheet portrays the current financial position. The statement of cash flows presents a different aspect of performance.
4. C is correct. The notes disclose choices in accounting policies, methods, and estimates.
5. A is correct. Information about management and director compensation is not found in the auditor’s report. Disclosure of management compensation is required in the proxy statement, and some aspects of management compensation are disclosed in the notes to the financial statements.
6. B is correct. These are components of management commentary.
7. C is correct. An unqualified opinion is a “clean” opinion and indicates that the financial statements present the company’s performance and financial position fairly in accordance with a specified set of accounting standards.
8. C is correct. Ratios are an output of the process data step but are an input into the analyze/interpret data step.
