Which of the following is correct? a. Aggressive accounting policies (choices) l

Question

Which of the following is correct?

     a. Aggressive accounting policies (choices) lead to lower earnings and higher assets

b. The independent auditor’s opinion and statement on the 10-K guarantee the information contained in the financial reports are correct.

c. The information contained in financial reports reflect “people-made” numbers and choices that may contain material errors and biases.

d. The information contained in audited financial reports are unquestioned facts because GAAP and the SEC required perfect information to be contained in 10-K’s.

Explanation / Answer

The Auditors certification of Financial statements on the 10-k is based on the evidence based audit the auditors do and it is based on the best of judgments of the proofs submitted for audit. However, the internal control efficacy , the effeiciency of managment and audit committee and the ethics of the company highly influence the fairness of the financial statements and the auditors cannot guarantee the facts as perfect information and many accounting estimates and accounting principles may be subject to debate and different interpretation. Therefore statement b &d are not true.

Similarly aggressive accounting policies do not lead to lower earnings or higher assets.

Statement c is true as informtion in financial statements are people made numbers and may contain material errors and biases . The auditors duty is to review the numbers and estimates and if required do the adjustments to correct any mistake.

Therefore statement c is true.

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