Question 1

The main accounting issues in the Nortel Networks case were:

Accepted Answer

A)  Premature revenue recognition and hidden cash reserves 
B)  Capitalization of operating expenses and hidden cash reserves 
C)  Premature revenue recognition and off-balance-sheet entities 
D)  Capitalization of operating expenses and off-balance-sheet entities 
A)  Premature revenue recognition and hidden cash reserves 
B)  Capitalization of operating expenses and hidden cash reserves 
C)  Premature revenue recognition and off-balance-sheet entities 
D)  Capitalization of operating expenses and off-balance-sheet entities

Question 2

Which of the following is NOT a motivation to manage earnings?

Accepted Answer

A)  Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options 
B)  Avoid the consequences of violating debt covenants 
C)  To smooth net income over time 
D)  To maximize employee bonuses 
A)  Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options 
B)  Avoid the consequences of violating debt covenants 
C)  To smooth net income over time 
D)  To maximize employee bonuses

Question 3

There are several aspects of the Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true?

Accepted Answer

A)  SOX permitted the provision of internal audit service for audit clients 
B)  Off-balance-sheet financing activities were prohibited for all companies 
C)  Related-party transactions require disclosure in the notes 
D)  Cookie jar reserves must be disclosed in the notes 
A)  SOX permitted the provision of internal audit service for audit clients 
B)  Off-balance-sheet financing activities were prohibited for all companies 
C)  Related-party transactions require disclosure in the notes 
D)  Cookie jar reserves must be disclosed in the notes

Question 4

Each of the following is a finding of a survey of CFOs about their perceptions of earnings quality except:

Accepted Answer

A)  CFOs believe that earnings are high quality when they are sustainable and backed by actual cash flows 
B)  CFOs believe that earnings are high quality when they make consistent reporting choices over time 
C)  CFOs believe key elements of earnings quality are transparency and predictability 
D)  CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split 
A)  CFOs believe that earnings are high quality when they are sustainable and backed by actual cash flows 
B)  CFOs believe that earnings are high quality when they make consistent reporting choices over time 
C)  CFOs believe key elements of earnings quality are transparency and predictability 
D)  CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split

Question 5

Which of the following is NOT required of management under Section 302 of the SOX?

Accepted Answer

A)  Review their disclosure controls and procedures quarterly 
B)  Identify key control exceptions and determine which are internal control deficiencies 
C)  Assess each internal control deficiency's impact on the audit report 
D)  Identify and report significant control deficiencies on material weaknesses to the audit committee and independent auditor 
A)  Review their disclosure controls and procedures quarterly 
B)  Identify key control exceptions and determine which are internal control deficiencies 
C)  Assess each internal control deficiency's impact on the audit report 
D)  Identify and report significant control deficiencies on material weaknesses to the audit committee and independent auditor

Question 6

If a company is managing its earnings, which of the ethical theories are they most likely following?

Accepted Answer

A)  Rights 
B)  Fairness 
C)  Egoism 
D)  Virtue 
A)  Rights 
B)  Fairness 
C)  Egoism 
D)  Virtue

Question 7

Which technique was used by both WorldCom and Waste Management to manage earnings?

Accepted Answer

A)  Manipulating asset net valuation amounts to minimize operating expenses for a period 
B)  Accelerating the recording of revenue into an earlier period 
C)  Delaying needed repairs to a later period 
D)  All of the above were used 
A)  Manipulating asset net valuation amounts to minimize operating expenses for a period 
B)  Accelerating the recording of revenue into an earlier period 
C)  Delaying needed repairs to a later period 
D)  All of the above were used

Question 8

Each of the following is a common revenue recognition device to manage earnings except:

Accepted Answer

A)  Multiple deliverables 
B)  Channel stuffing 
C)  Buy and hold 
D)  Round tripping 
A)  Multiple deliverables 
B)  Channel stuffing 
C)  Buy and hold 
D)  Round tripping

Question 9

All of the following are examples of "Boosting Income with One-Time Gains" except:

Accepted Answer

A)  Recording sales that lack economic substance 
B)  Boosting profits by selling undervalued assets 
C)  Including investment income or gains as part of revenue 
D)  Including investment income or gains as a reduction in operating expenses 
A)  Recording sales that lack economic substance 
B)  Boosting profits by selling undervalued assets 
C)  Including investment income or gains as part of revenue 
D)  Including investment income or gains as a reduction in operating expenses

Question 10

Deloitte suggests the quality of earnings from the audit perspective should consider all of the following except:

Accepted Answer

A)  Consider earnings components in relation to the earnings continuum 
B)  Consider large variances in an accounting estimates compared with actual determined amounts 
C)  Understand the sources of earnings 
D)  Be familiar with press coverage regarding financial performance 
A)  Consider earnings components in relation to the earnings continuum 
B)  Consider large variances in an accounting estimates compared with actual determined amounts 
C)  Understand the sources of earnings 
D)  Be familiar with press coverage regarding financial performance

Question 11

Which of the following author(s) emphasize(s) a "purposeful intervention in the external reporting process, with the intent of obtaining some private gain"?

Accepted Answer

A)  Dechow and Skinner 
B)  Healy and Wahlen 
C)  Schipper 
D)  Thomas E. McKee 
A)  Dechow and Skinner 
B)  Healy and Wahlen 
C)  Schipper 
D)  Thomas E. McKee

Question 12

A common method used to smooth net income over time is:

Accepted Answer

A)  Accelerate revenue into earlier periods 
B)  Delay expenses into later periods 
C)  Using accrual of operating expenses and future adjustments 
D)  Using nonrecurring items to increase earnings in one year and reduce it later on 
A)  Accelerate revenue into earlier periods 
B)  Delay expenses into later periods 
C)  Using accrual of operating expenses and future adjustments 
D)  Using nonrecurring items to increase earnings in one year and reduce it later on

Question 13

The SEC requires stealth restatements to be:

Accepted Answer

A)  Disclosed only in periodic reports 
B)  Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A 
C)  Increased to more 50% of restatements 
D)  Disclosed in ten business days after determination of need for restatement 
A)  Disclosed only in periodic reports 
B)  Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A 
C)  Increased to more 50% of restatements 
D)  Disclosed in ten business days after determination of need for restatement

Question 14

The accounting shenanigan used in the Dell Computer case can best be described as:

Accepted Answer

A)  Recording revenue from exclusivity payments too soon or of questionable quality 
B)  Shifting current revenue from exclusivity payments to a later period 
C)  Shifting future expenses to the current period as a special charge 
D)  Shifting current expenses to a later period 
A)  Recording revenue from exclusivity payments too soon or of questionable quality 
B)  Shifting current revenue from exclusivity payments to a later period 
C)  Shifting future expenses to the current period as a special charge 
D)  Shifting current expenses to a later period

Question 15

Assume you are a CPA and the accounting manager of a small privately-owned business that has three co-equal shareowners. Your company receives $1,000 from a cash sale of merchandise taken by the customer. Your boss tells you to recognize only $700 and put the other $300 in reserves. What would you do and say and why? Use ethical reasoning to support your position.

Accepted Answer

Your boss is telling you to establish a

Question 16

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?

Accepted Answer

A)  Shifting current revenue to a later period 
B)  Boosting income with one-time gains 
C)  Recording revenue too soon or of questionable quality 
D)  Shifting current expenses to a later or earlier period 
A)  Shifting current revenue to a later period 
B)  Boosting income with one-time gains 
C)  Recording revenue too soon or of questionable quality 
D)  Shifting current expenses to a later or earlier period

Question 17

Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation, but Steve does not. What statement might Steve make to best support his point of view?

Accepted Answer

A)  It depends on whether the misstatements were made deliberately 
B)  It depends on whether a user relied on the financial statements 
C)  It depends on whether the statements lead to a modified or unmodified opinion 
D)  All are valid statements for Steve to support his point of view 
A)  It depends on whether the misstatements were made deliberately 
B)  It depends on whether a user relied on the financial statements 
C)  It depends on whether the statements lead to a modified or unmodified opinion 
D)  All are valid statements for Steve to support his point of view

Question 18

Categorize the financial shenanigans in the fraud cases at Gemstar-TV Guide and Lucent.

Accepted Answer

Lucent's financial shenanigans involved

Question 19

In Chapter 7 we discuss the work of Sam Antar, a convicted felon and former CFO of Crazy Eddie, in helping to analyze and ferret out the fraud at Green Mountain Roasters in September 2012. Today Antar works very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals.
In October 2015, Andy Fastow, also a CFO (at Enron) and convicted felon, spoke at the University of Missouri on "Pride and Repentance: The Enron Story," focusing on his personal shortcomings and similar number-fudging he says is still occurring in companies across the world. Despite the damage he caused, Fastow said he didn't break any rules while at Enron but instead found ways around the rules for his own and the company's benefit.
Do you believe that convicted felons should be allowed to benefit from their work and speeches in a financial or reputational way? Use ethical reasoning to support your answer.

Accepted Answer

Antar conducted detailed financial analy

Question 20

You work for a company that always pushes the envelope with respect to reporting revenues and expenses. You often disagree with the company because its approach to reporting these amounts cannot be justified from a GAAP perspective. You are upset and are considering whether this is a company that has a culture you want to be part of. Which of the following best characterizes the ethical issues of concern?

Accepted Answer

A)  Rights Theory 
B)  Moral blindness 
C)  Ethical Dissonance 
D)  Materiality 
A)  Rights Theory 
B)  Moral blindness 
C)  Ethical Dissonance 
D)  Materiality

The main accounting issues in the Nortel Networks case were:

Which of the following is NOT a motivation to manage earnings?

There are several aspects of the Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true?

Each of the following is a finding of a survey of CFOs about their perceptions of earnings quality except:

Which of the following is NOT required of management under Section 302 of the SOX?

If a company is managing its earnings, which of the ethical theories are they most likely following?

Which technique was used by both WorldCom and Waste Management to manage earnings?

Each of the following is a common revenue recognition device to manage earnings except:

All of the following are examples of "Boosting Income with One-Time Gains" except:

Deloitte suggests the quality of earnings from the audit perspective should consider all of the following except:

Which of the following author(s) emphasize(s) a "purposeful intervention in the external reporting process, with the intent of obtaining some private gain"?

A common method used to smooth net income over time is:

The SEC requires stealth restatements to be:

The accounting shenanigan used in the Dell Computer case can best be described as:

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?

Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation, but Steve does not. What statement might Steve make to best support his point of view?

Categorize the financial shenanigans in the fraud cases at Gemstar-TV Guide and Lucent.

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Organizational Ethics and Corporate Governance

Ethics and Professional Judgment in Accounting

Fraud in Financial Statements and Auditor Responsibilities

Legal, Regulatory, and Professional Obligations of Auditors

Ethical Leadership and Decision-Making in Accounting

Filters

Exam 7: Earnings Management

The main accounting issues in the Nortel Networks case were:

Which of the following is NOT a motivation to manage earnings?

There are several aspects of the Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true?

Each of the following is a finding of a survey of CFOs about their perceptions of earnings quality except:

Which of the following is NOT required of management under Section 302 of the SOX?

If a company is managing its earnings, which of the ethical theories are they most likely following?

Which technique was used by both WorldCom and Waste Management to manage earnings?

Each of the following is a common revenue recognition device to manage earnings except:

All of the following are examples of "Boosting Income with One-Time Gains" except:

Deloitte suggests the quality of earnings from the audit perspective should consider all of the following except:

Which of the following author(s) emphasize(s) a "purposeful intervention in the external reporting process, with the intent of obtaining some private gain"?

A common method used to smooth net income over time is:

The SEC requires stealth restatements to be:

The accounting shenanigan used in the Dell Computer case can best be described as:

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?

Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation, but Steve does not. What statement might Steve make to best support his point of view?

Categorize the financial shenanigans in the fraud cases at Gemstar-TV Guide and Lucent.

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Organizational Ethics and Corporate Governance

Ethics and Professional Judgment in Accounting

Fraud in Financial Statements and Auditor Responsibilities

Legal, Regulatory, and Professional Obligations of Auditors

Ethical Leadership and Decision-Making in Accounting

Filters