Question (1) Identify the example of accounting risk from the descriptions provided. O Loan repayments are not made due to poor cash flow. Auditors engaged will not have appropriate qualifications. O Making inappropriate lending decisions due to inaccurate information in the accounts. O The Finance department in the business are unable to meet the regulatory requirements imposed on them. Question (2) You are assessing a client's only residential property as potential, additional security for a loan. Which valuation method would be appropriate for this purpose? O Market value derived from prior year sales of properties of identical size and age in different States. O Market value based on recent sales of properties of similar size and condition in the same area. O Client's estimate of the present value of estimated future net income from letting the property. O Client's own estimate of the cost of building a replacement property of similar size and characteristics. Question (3) Which of these factors has helped drive the need for common global financial reporting standards? O The emergence of China as a global superpower, seeking international capital. O Increasing globalization of companies, seeking finance from international capital markets and the need for comparable financial statements. O Regulations imposed by the G7 nations. O The 2008 credit crisis highlighting the requirement for consistent financial reporting by financial institutions. Question (4) Which statement relating to Personal Income Statements and Tax Returns is inaccurate? O Tax Returns can be used as a foundation for credit analysis as they include all of the information relating to assets and liabilities of the individual. O If there are differences, it is always better to use the information on the tax return as it has been prepared for a legal purpose and therefore will be correct. O Personal Income Statements include income and expenses that are not included on a Tax Return. O Personal income statements can be different from tax returns due to timing differences and basis of preparation. Question (5) All other things being equal, which of these financial statements would be most reliable? O Unqualified audited accounts with an emphasis of matter. O Reviewed accounts. O Company prepared accounts. O Qualified audited accounts with an except for qualification. Question (6) Mrs. Singh has applied for a loan to expand her business. The loan will be secured on existing business premises together with a personal guarantee, and she has submitted her personal balance sheet to support this. Which item would you exclude in the calculation of her net worth? O Her car. O Her business premises. O The outstanding mortgage on her house. Her credit card balances. Question (7) Which area of accounting presents considerable scope for flexibility of treatment? O The carrying amount of debt. O The date at which companies may book a sale. O The date at which wages and salary expenditures get booked. Presentation of cash balance. Question (8) Keeping abreast of accounting developments is an important part of a finance professionals role. Which statement describes a legitimate and accurate reason for doing this? O Analysts should have a general interest in accounting practices and to maintain that interest it is helpful to keep up to date. Keeping track of accounting developments is necessary to fully understand the financial statements. O Only by having knowledge of latest accounting developments is it possible to identify whether a company has made adjustments to its accounting policies. If you are having a conversation with your client's accountants, they would expect you to be aware of recent developments in their line of work. Question (9) You have been presented with audited financial statements for a prospective new customer. Why is it important that you scrutinize these carefully? O Auditors only perform random checks on the audited financial statements so you cannot rely upon those statements without performing further testing yourself. O Since the discovery of fraud is not an objective of the auditors you will have to carry out a detailed review of the accounts to test for frauds that could impact your lending decision. It is not necessary to carry out further scrutiny as long as the accounts are audited and have received an unqualified opinion from the auditors. Question (10) Which of these items might you find on a business balance sheet that you would not normally find on a personal statement of net worth? O Tax payable. O Accumulated other comprehensive income. O Cash. Amounts owed to credit institutions. Question (11) Who is responsible for determining the quality of financial statements (for example, by defining the level of materiality and depth of disclosure)? O Regulators (such as SEC) O Auditors. O Standards setting bodies (such as FASB) O Management of the borrowing entity. Question (12) In relation to IFRS which of these statements is correct? O The UN has mandated that all countries adopt IFRS within the next 10 years. OIFRS is now required to be used for financial reporting by all countries for listed companies. O All countries allow IFRS to be used by companies listed on their stock exchanges. O Some countries are gradually converging their local accounting practices to full IFRS by adopting individual IFRSS into their local practices.