When Firms Have Obligations That Do Not Meet the Formal

question 3

Multiple Choice

When firms have obligations that do not meet the formal definition of a liability, U.S.GAAP require that firms

• A)disclose information about such obligations in notes to the financial statements.
• B)highlight such arrangements in the Management Discussion and Analysis section.
• C)have the auditor address such matters in a separate paragraph in the independent auditor's report accompanying the financial statements.
• D)do not mention the obligation because they are not valid liabilities and to do otherwise would mislead the readers of the financial statements.
• E)none of the above.

---

Definitions:

Covariance Value

A measure indicating the extent to which two variables change together, showing if increases in one variable correspond to increases in another.

Correlation Coefficient

A quantitative indicator showing both the magnitude and direction of a linear association between a pair of variables.

Linear Relationship

A type of association where changes in an independent variable result in proportional changes in a dependent variable, represented by a straight line in graph form.

Covariance

A measure that determines the degree to which two variables change together.