CFAI Practice: M01 Introduction to FSA
Total: 16 questions
Q1. An analyst uses financial ratios to compare a company’s performance over time. This activity is best described as which step in the financial statement analysis framework?
A. Collect data B. Process data C. Analyze/interpret data
Answer: C. Using ratios to compare performance is part of the analyze/interpret step of the FSA framework.
Q2. After analyzing the data and drawing conclusions, which step most likely follows?
A. Develop and communicate conclusions/recommendations B. Collect additional data C. Reprocess the data
Answer: A. The final step is to develop and communicate conclusions and recommendations.
Q3. Forming expectations about a company’s future financial performance is most closely associated with which step?
A. Collect data B. Process data C. Analyze/interpret data
Answer: C. Forming expectations about future performance is part of analyzing and interpreting the data.
Q4. An analyst evaluating whether a company can meet its short-term obligations is most likely assessing:
A. Profitability B. Liquidity C. Solvency
Answer: B. Assessing ability to meet short-term obligations relates to liquidity analysis.
Q5. International Financial Reporting Standards (IFRS) are developed by the:
A. FASB B. IASB C. SEC
Answer: B. The International Accounting Standards Board (IASB) develops IFRS.
Q6. US Generally Accepted Accounting Principles (GAAP) are established by the:
A. IASB B. FASB C. SEC
Answer: B. The Financial Accounting Standards Board (FASB) establishes US GAAP.
Q7. IOSCO’s primary objective is to:
A. Set global accounting standards B. Regulate US securities markets C. Ensure markets are fair, efficient, and transparent
Answer: C. IOSCO works to ensure that securities markets are fair, efficient, and transparent, and to protect investors.
Q8. Notes to financial statements are best described as providing:
A. Management’s outlook on future performance B. The auditor’s opinion on fairness C. Information necessary to understand the financial statements
Answer: C. Notes provide essential information to understand the financial statements, including accounting policies, disaggregations, and supplementary detail.
Q9. Information about a company’s accounting policies is most likely found in:
A. The auditor’s report B. Management commentary C. Notes to the financial statements
Answer: C. Accounting policies are disclosed in the notes to the financial statements.
Q10. Information about management compensation is most likely found in the:
A. Annual report B. Proxy statement C. Notes to financial statements
Answer: B. Management compensation details are disclosed in the proxy statement.
Q11. A company’s objectives and strategies are most likely discussed in the:
A. Auditor’s report B. Management commentary (MD&A) C. Notes to financial statements
Answer: B. Management commentary / MD&A discusses the company’s objectives, strategies, and outlook.
Q12. An auditor’s report stating that financial statements are fairly presented in all material respects is a(n):
A. Qualified opinion B. Adverse opinion C. Unqualified (clean) opinion
Answer: C. An unqualified opinion means the auditor believes the statements are fairly presented in all material respects.
Q13. If an auditor identifies a specific exception but otherwise finds the statements fairly presented, the opinion is:
A. Unqualified B. Qualified C. Adverse
Answer: B. A qualified opinion notes a specific exception to fair presentation.
Q14. An audit of financial statements provides:
A. Absolute assurance B. Reasonable assurance C. Limited assurance
Answer: B. An audit provides reasonable, not absolute, assurance that statements are free from material misstatement.
Q15. Interim financial reports are typically:
A. Audited B. Unaudited C. Reviewed by a different auditor
Answer: B. Interim reports are typically unaudited (though they may be reviewed).
Q16. Which of the following is found outside the annual report?
A. Financial statements B. Peer company analysis C. Auditor’s report
Answer: B. Peer company analysis is performed externally by analysts and is not part of the annual report.