What part of the Liberty’s annual report is written by the company and could present a biased view of financial conditions and results?
- a.
Balance Sheet - b. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
- c. Auditor’s Report
- d. Income Statement
Annual Report: As per Securities and Exchange Commission requirements, all the public companies are mandated to prepare the annual report. Annual report of a company contains the following information:
- Company’s financial status
- Summary about company, its industry, its brands, and its growth policies
- States the risks of the company and its competitors
Thus, annual report provides complete information about the financial position of a company. This helps the investors to make proper decisions.
To determine: The part of annual report that provides biased view of financial conditions.
Given info: Details of annual report.
Answer to Problem 1QC
Explanation of Solution
Explanation for incorrect answer:
a.
Balance sheet is a one of the financial statement. It reports the assets and liabilities of the company as on a specific date. Thus, it does not provide any information about the biased views of the financial condition of the company. Hence, it is not the correct answer.
c.
Audit report is the report issued by the public accountant. It expresses his opinion about the financial statements and their conformity with generally accepted accounting principles. Audit report does not explain about the financial condition of the company. Hence, it is not the correct answer.
d.
Income statement is a financial statement. It reports information regarding income earned and the expenses incurred by the company. It does not provide any information about the biased views of the financial condition of the company. Hence, it is not correct answer.
Explanation for correct answer:
b.
Management’s discussion and analysis of a company reported in the annual report explains the business operations and the current and expected financial performance of the company. It is provided in the interest of the investors and it is biased. Hence, it is correct answer.
Hence, the correct answer is option b.
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Horngren's Financial & Managerial Accounting, The Financial Chapters Plus MyLab Accounting with Pearson eText -- Access Card Package (6th Edition)
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