Users of financial statements Identify at least three types of users of financial statements. Describe their primary use of the financial statements and how the misstatement of those statements might injure the user
Users of audited financial statements may include:
• Management may utilize the audit report to determine whether the financial statements are presented in accordance with GAAP, whether the firm is availing itself of appropriate internal controls, and as a means of evaluating employee performance. Misstatement of the financial statements would cause the client to make erroneous decisions about financial position, internal controls and employee rewards and punishments.
• A financial institution that is asked to make a loan uses the financial statement to judge the credit worthiness of the borrower. Misstatements in the financial statements lead to errors in lending that jeopardize the assets of the bank and depositors.
• A vendor who is asked to grant credit uses the statements and faces injury in a manner similar to the financial institution.
• A third-party stockholder uses the financial statements to determine if the investment will provide the returns consistent with the needs of the investor. Misstatements of the financial statements will lead to different results or possible loss of the investment.
• Others: Potential stockholders, taxing authorities, regulatory agencies, labor unions, employees, bondholders, court system, retirement plans, or retired employees
You might also like to view...
The general ledger account for Accounts Receivable shows a debit balance of $25,000 . Allowance for Uncollectible Accounts has a credit balance of $1,500 . Net sales for the year were $250,000 . In the past, 3 percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of $10,000 of uncollectible accounts receivable. Using the accounts receivable aging
method, the Allowance for Uncollectible Accounts balance (after adjustment) would be a. $11,500. b. $10,000. c. $8,500. d. $10,750.
Tour Vista, an online travel company, buys blocks of rooms from Skyview Towers, a hotel in River City, at a wholesale rate. Tour Vista resells the rooms to consumers at a retail rate. In recent efforts to collect taxes from e-commerce, some cities claim that hotel occupancy taxes should be assessed and remitted directly to the cities based on
a. the dire financial straits of the cities during the latest recession. b. the retail rates of the rooms. c. the states of residency of the consumers who reserve the rooms. d. the wholesale rates of the rooms.
Billings and Durick, who are competing distributors, made an agreement whereby Billings promised that he would not sell his goods in a specified area, and Durick promised that she would not sell her goods in another specified area. The agreement was made to keep prices high by eliminating competition. This arrangement was
a. legal because it was made in reasonable restraint of trade in order to control prices and territory. b. legal because a binding contract was made willingly by both parties. c. illegal because it called for unreasonable restraint of trade by controlling prices and territories. d. illegal because agreements that allow manufacturers to set prices are voidable.
Describe two advantages and two disadvantages of the high-low method of cost estimation.
What will be an ideal response?