Financial Auditor Quiz

Information analyzers and advisors such as financial analysts do not collect and analyze business information used for decision making.

Stock exchanges facilitate buying and selling activities in capital markets.

Copyright restrictions do not apply to the content in the given text.

Regulators are not mentioned as a type of information intermediary in the given text.

Credit rating agencies analyze business information for making investment decisions.

Financial intermediaries solely rely on the information in financial statements to analyze investment opportunities.

Different intermediaries always serve as a system of checks and balances to ensure the efficient functioning of the capital markets system.

Enron and WorldCom are examples of companies that have had spectacular successes due to their effective financial intermediaries.

The recent global financial crisis did not involve failures from companies like Lehman Brothers and New Century Financial.

Imperfections in financial and information intermediaries' incentives can lead to reinforcing actions between different intermediaries.

Governance issues within intermediary organizations can never affect the functioning of the capital markets system.

The independent auditor would ask if the accounting policies in the financial statements are consistent with the central planning ideology.

In the capitalist market model, decisions regarding investments are made centrally by government agencies.

Central planning economies rely on the market mechanism to govern economic activity.

The failure of the central planning model is evidenced by the success of most state economies in the twentieth and early twenty-first centuries.

The independent auditor would check if the financial reports effectively communicate the current status and significant risks of the business.

The twentieth and early twenty-first-century economies have primarily followed either capitalism or central planning ideologies for business investments.

Sound accounting analysis does not improve the reliability of conclusions from financial analysis.

The goal of financial analysis is to use financial data to evaluate the current and past performance of a firm and to assess its sustainability.

Ratio analysis and cash flow analysis are the three most commonly used financial tools.

Prospective analysis focuses on forecasting a firm's future and is the final step in business analysis.

Financial statement forecasting and valuation are two commonly used techniques in retrospective analysis.

A firm's intrinsic value is a function of its future cash flow performance and its current book value of equity.

Successful intermediaries have a better understanding of the firm's industry economics than the firm's managers.

Outside analysts have a complete access to the firm's inside information.

Effective financial statement analysis is valuable because it attempts to get at managers' outside information.

The purpose of business strategy analysis is to identify key profit drivers and business risks, and to assess the company's profit potential at a qualitative level.

Figure 1-3 provides a schematic overview of how business intermediaries use financial statements to accomplish five key steps.

Successful intermediaries have a reasonably good understanding of the firm's competitive strategy.