If Financial Statements Contain a Departure from GAAP,a CPA Is

question 13

Multiple Choice

If financial statements contain a departure from GAAP,a CPA is:

• A) Not allowed to issue an audit report concerning the statements
• B) Required to disclose an estimate of the approximate financial impact that the departure from GAAP had on the financial statements
• C) Allowed to complete the current-year engagement only if the financial statements are utilized by company management for internal decision-making
• D) Required to withdraw from future-year engagements, but may complete the current-year assignment as long as the departure from GAAP is adequately disclosed

Know the variables affecting the security market line (SML) approach to estimating expected return on a risky asset.

Differentiate between the after-tax cost of debt and the yield to maturity concerning bond prices and interest rates.

Understand how the SML approach assumes constancy in the reward-to-risk ratio and its implications for a firm's cost of equity.

Understand the financial challenges and resources available to entrepreneurs, including the difficulties of obtaining financing and the role of the Small Business Administration.

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Definitions:

Discount Rate

The rate at which the Federal Reserve lends money to financial institutions through its discount window.

Required Rate

The minimum expected rate of return on an investment, considering its risk.

Cash Flows

The total amount of money being transferred into and out of a business, especially considered in terms of liquidity.