Which of the following, if true, weakens the case that more than one t

QUESTION

Which of the following, if true, weakens the case that more than one type of financial statement should be examined in order to determine a company’s financial health?

A) Nowadays, many companies burnish their balance sheet by claiming inflated figures for goodwill.
B) An income statement from one year may be radically different from the one for the previous year.
C) It can be difficult for auditors to independently verify certain figures in income statements.
D) The management by data trend has led companies to consider as imperative detailed and accurate financial statements.
E) In times of recession, companies often reduce their accounting and financial management staffs.

ANSWER

Answer: D
Explanation: D) In general, it is certainly beneficial to consider a company’s balance sheet, income statement, and statement of cash flow. If the management by data trend is resulting in more complete and reliable individual statements, however, this tends to weaken the claim that multiple statements must be considered. Reasons not to rely exclusively on a single statement include possibly misleading balance sheets (Choice A) and income statements (Choices B and C). Companies that lay off accounting and financial staff during difficult economic times (Choice E) may, as a result, have fewer resources available to produce complete and accurate financial statements.