Question

Methods of financial statements analysis are most effectively applied together in a reiterative (rather than sequential) process. True/False

Financial statements rarely, if ever, represent economic reality True/False

Operational freedom and reporting freedom are held in check by the principle of materiality. True/False

Internal and external comparisons, made during financial statement analysis, can reveal unexpected relationships or the absence of expected relationships. True/False

Amounts shown on financial statements reflect current values. True/False

Answer 1

Answer 1

"Methods of financial statements analysis are most effectively applied together in a reiterative (rather than sequential) process. "

The above statement is TRUE as it is appropriate to analyze the Financial statements as a whole rather than in sequential process to get a complete picture of the enterprise because if analysis is done in sequential manner then there might be difficulty in understanding some information due to breaks in information

Answer 2

"Financial statements rarely, if ever, represent economic reality"

The above statement is TRUE as  First, corporate financial statements necessarily depend on estimates and judgment calls that can be widely off the mark, even when made in good faith. Second, standard financial metrics intended to enable comparisons between companies may not be the most accurate way to judge the value of any particular company—this is especially the case for innovative firms in fast-moving economies—giving rise to unofficial measures that come with their own problems. Finally, managers and executives routinely encounter strong incentives to deliberately inject error into financial statements.Thus it can be said that Financial statements rarely represent economic reality

Answer 3

"Operational freedom and reporting freedom are held in check by the principle of materiality."

The above statement is FALSE as operational freedom and reporting freedom are held in check by the the accounting framework implied by the AICPA .

Answer 4

"Internal and external comparisons, made during financial statement analysis, can reveal unexpected relationships or the absence of expected relationships"

The above statement is TRUE as sometimes after comparisons even the hidden transactions come into light displaying unexpected relations( like sale of goods much lower than the existing market rate or some transactions that lead to evasion of tax )

Answer 5

"Amounts shown on financial statements reflect current values"

The above statement is FALSE   as mostly the financial statements show current amount but they sometimes also depict historical cost of assets.