Question #19
Reading: Reading 12 Evaluating Quality of Financial Reports
PDF File: Reading 12 Evaluating Quality of Financial Reports.pdf
Page: 15
Status: Correct
Correct Answer: A
Question
The least valuable source of information about a businesses' risk is:
Answer Choices:
A. Management discussion and analysis section of the annual report
B. Auditor’s report
C. Notes to financial statements
Explanation
Because an audit report provides only historical information, such a report's usefulness as
an information source is limited. Companies are required to make certain risk related
disclosures in the notes to financial statements. Both GAAP and IFRS require companies to
disclose risks related to pension benefits, contingent obligations and financial
instruments. Ideally, companies should include principal risks that are unique to the
business (as opposed to risks faced by most businesses) in their MD&A.