Question

4. Which of the following is an assumption of fundamental analysis?

a.	Securities markets are efficient.
b.	Prices of securities rapidly reflect all publicly available information.
c.	The strong form of the efficient-markets hypothesis is true.
d.	Under-priced shares can be found in the securities market by means of financial statement analysis.

5.   Which of the following is not a true statement?

a.	Comparability refers to accounting for similar transactions similarly and different circumstances differently.
b.	Comparability refers to comparing alternatives in order to make a decision.
c.	Comparability is an inherent quality of accounting numbers in the same sense that relevance and reliability are.
d.	Uniformity influences comparability.

Answer 1

4. Answer- (b). Prices of securities rapidly reflect all publicly available information.

Explanation-

Fundamental analysis is a method of measuring securities' intrinsic value by examining related economic and financial factor. The ultimate goal is to find out that whether the securities are undervalued or overvalued in the market. Fundamental analysis uses public data to evaluate the value of stock for other type of securities. This analysis search for the stock that are currently trading at the price lower or higher than the actual value. With the help of fundamental analysis, we can find out the stock's real or fair market value. It will use the historical price trend to find out the stock prices.

Fundamental analysis assume that at all the public information is rapidly Incorporated into security prices. And no such information can be used to generate some abnormal gain.

5. (C). Comparability is an inherent quality of accounting numbers in the same sense that relevance and reliability are.

Explanation-

Comparability means the financial statement of one period must be comparable with the another period. It means the application of policies and standard consistently. Comparability makes it easier for the users of the financial statement to compare the results of the two periods or the same period with the industry.

Whereas the relevance refers to the usefulness of information. An information is said to be relevant only if it is necessary for the purpose of decision making.  

Reliability of the information is ensure only when the information can be verified. Verifiability of an information makes it reliable for the users of financial statement.

Although the three are the qualitative characteristics of the accounting information, but comparability, relevance and reliability are three different terms which is not used in the same sense. It has its own meaning stated above.