Why Is the Audit Report Important in the Analysis of a Company

question 52

Multiple Choice

Why is the audit report important in the analysis of a company?

• A) The auditors are an independent third party expressing an opinion on the fairness of the financial statements.
• B) It guarantees the accuracy of the information in the financial statements.
• C) The auditors are hired by management to assess the appropriateness of the accounting policies chosen.
• D) It guarantees the accuracy of the internal controls of the company.

---

Definitions:

Acid-test Ratio

A liquidity ratio that measures a company’s ability to pay off its current liabilities with quick assets, excluding inventory.

Accounts Receivable Turnover

A financial ratio that measures the efficiency of a company in collecting its receivables or the credit it has extended to customers.

Inventory Turnover

A ratio indicating how many times a company's inventory is sold and replaced over a specific period.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency of a business.