Question 1

The text discusses something called the "fraud triangle."

Accepted Answer

The "fraud triangle" is a theoretical mo

Question 2

Historically, one reason the SEC has favored historical cost accounting is because this method is easy to verify.

Accepted Answer

A) True 
 B)False

Question 3

Historically, the SEC has tended to favor accounting methods that are less conservative, because the SEC wants U.S. companies to look highly profitable.

Accepted Answer

A) True 
 B)False

Question 4

"Budgetary slack" is an earnings management technique that involves recording excessive liability reserves when times are good, and correcting the excessive reserves in years with lower profits.

Accepted Answer

A) True 
 B)False

Question 5

A term for strategies that companies use to make their balance sheets look better is "window dressing."

Accepted Answer

A) True 
 B)False

Question 6

A company decides to meet its profit target for the year by using a relatively long life to depreciate a new asset it acquired, to keep the depreciation expense low. (There was a range of reasonable estimates for the life of the asset, and the company chose one of the longer lives in the range.) This is an example of

Accepted Answer

A)  Accruals management 
B)  Expectations management 
C)  Fraud 
D)  Real earnings management 
A)  Accruals management 
B)  Expectations management 
C)  Fraud 
D)  Real earnings management

Question 7

A company decides to meet its profit target for 2016 by claiming that certain sales that it actually made and shipped in January of 2017 were made in December of 2016. This is an example of

Accepted Answer

A)  Accruals management 
B)  Expectations management 
C)  Fraud 
D)  Real earnings management 
A)  Accruals management 
B)  Expectations management 
C)  Fraud 
D)  Real earnings management

Question 8

Which of the following factors is, according to AICPA, an example of incentives and pressures to commit fraud?

Accepted Answer

A)  Inappropriate ethical standards in the organization 
B)  Ineffective monitoring of management by the board of directors 
C)  Inadequate internal controls 
D)  Expectations of investment analysts and significant creditors for high earnings 
A)  Inappropriate ethical standards in the organization 
B)  Ineffective monitoring of management by the board of directors 
C)  Inadequate internal controls 
D)  Expectations of investment analysts and significant creditors for high earnings

Question 9

The earnings management technique that is being used when a company records an overly large liability for a potential lawsuit against it, during a year when profits are good, and later corrects this liability in a year with low profits, is

Accepted Answer

A)  Taking a big bath 
B)  Real earnings management 
C)  Abusing materiality 
D)  Using a cookie jar reserve 
A)  Taking a big bath 
B)  Real earnings management 
C)  Abusing materiality 
D)  Using a cookie jar reserve

Question 10

Which of the following factors is, according to AICPA, an example of opportunities to commit fraud?

Accepted Answer

A)  There is excessive interest by management in maintaining the entity's trend of earnings. 
B)  Internal controls are deficient, due to ineffective accounting and information systems. 
C)  There is an increasing number of business failures in the company's industry. 
D)  Management has personally guaranteed certain debts of the company. 
A)  There is excessive interest by management in maintaining the entity's trend of earnings. 
B)  Internal controls are deficient, due to ineffective accounting and information systems. 
C)  There is an increasing number of business failures in the company's industry. 
D)  Management has personally guaranteed certain debts of the company.

Question 11

Research on company business practices finds that it is only a minority of companies that rigidly compare company performance to pre-established budgets, without making any allowances for changes that occurred during the year.

Accepted Answer

A) True 
 B)False

Question 12

The FASB has repeatedly said that its objective, in setting standards, is to try to help move society toward certain particular goals, including a fairer allocation of resources.

Accepted Answer

A) True 
 B)False

Question 13

A taxpayer decides to cheat on taxes because she knows that the odds of being audited by the government are very low. Which element of the fraud triangle is most clearly involved?

Accepted Answer

A)  Pressures or incentives 
B)  Opportunities to commit fraud 
C)  Rationalizations 
D)  Sociopathic behavior 
A)  Pressures or incentives 
B)  Opportunities to commit fraud 
C)  Rationalizations 
D)  Sociopathic behavior

Question 14

A car dealership decides to rank its salespeople based on the number of cars that they sell during a month, in the hopes of making more money by making more sales. One salesman reacts by offering very generous deals to customers, in order to make sales, even though the dealership will not make any profits at these prices. This behavior can best be characterized as:

Accepted Answer

A)  Acting to modify the measurement system before it goes into effect 
B)  Doing what is desired in response to being measured 
C)  Doing what looks good on the measurement system, even though it was not what was actually desired 
D)  Lying 
A)  Acting to modify the measurement system before it goes into effect 
B)  Doing what is desired in response to being measured 
C)  Doing what looks good on the measurement system, even though it was not what was actually desired 
D)  Lying

Question 15

Some companies use a "balanced scorecard" to judge managers' performance. The balanced scorecard includes financial measures as well as measures of customer satisfaction, productivity, and company training and innovation efforts. The use of a balanced scorecard can be seen as

Accepted Answer

A)  A way for management to avoid measurement 
B)  Window dressing 
C)  A use of multiple measures to avoid the dysfunctional effects of focusing too much on financial measures 
D)  A response to government reporting requirements 
A)  A way for management to avoid measurement 
B)  Window dressing 
C)  A use of multiple measures to avoid the dysfunctional effects of focusing too much on financial measures 
D)  A response to government reporting requirements

Question 16

A "game against nature" is a game where there are two parties, each of whom acts strategically.

Accepted Answer

A) True 
 B)False

Question 17

An example of people trying to avoid measurement would be

Accepted Answer

A)  A manager increases profits by selling lower quality merchandise, knowing that sales returns and warranty claims are likely to be reported in the next fiscal year. 
B)  A company decides to report using IFRS rather than GAAP. 
C)  A chief executive buys out the shareholders of a public company, so that the company will no longer need to report results to the SEC or the public. 
D)  A company writes a letter to the FASB asking it to allow research costs to be treated as assets, rather than as expenses. 
A)  A manager increases profits by selling lower quality merchandise, knowing that sales returns and warranty claims are likely to be reported in the next fiscal year. 
B)  A company decides to report using IFRS rather than GAAP. 
C)  A chief executive buys out the shareholders of a public company, so that the company will no longer need to report results to the SEC or the public. 
D)  A company writes a letter to the FASB asking it to allow research costs to be treated as assets, rather than as expenses.

Question 18

A car dealership decides to rank its salespeople based on the number of cars that they sell during a month, in the hopes of making more money by making more sales. One salesman reacts by working harder, and being more welcoming to customers, and increased the number of sales he made. This behavior can best be characterized as

Accepted Answer

A)  Acting to modify the measurement system before it goes into effect 
B)  Doing what is desired in response to being measured 
C)  Doing what looks good on the measurement system, even though it was not what was actually desired 
D)  Lying 
A)  Acting to modify the measurement system before it goes into effect 
B)  Doing what is desired in response to being measured 
C)  Doing what looks good on the measurement system, even though it was not what was actually desired 
D)  Lying

The text discusses something called the "fraud triangle."

Historically, one reason the SEC has favored historical cost accounting is because this method is easy to verify.

Historically, the SEC has tended to favor accounting methods that are less conservative, because the SEC wants U.S. companies to look highly profitable.

"Budgetary slack" is an earnings management technique that involves recording excessive liability reserves when times are good, and correcting the excessive reserves in years with lower profits.

A term for strategies that companies use to make their balance sheets look better is "window dressing."

A company decides to meet its profit target for 2016 by claiming that certain sales that it actually made and shipped in January of 2017 were made in December of 2016. This is an example of

Which of the following factors is, according to AICPA, an example of incentives and pressures to commit fraud?

The earnings management technique that is being used when a company records an overly large liability for a potential lawsuit against it, during a year when profits are good, and later corrects this liability in a year with low profits, is

Which of the following factors is, according to AICPA, an example of opportunities to commit fraud?

Research on company business practices finds that it is only a minority of companies that rigidly compare company performance to pre-established budgets, without making any allowances for changes that occurred during the year.

The FASB has repeatedly said that its objective, in setting standards, is to try to help move society toward certain particular goals, including a fairer allocation of resources.

A taxpayer decides to cheat on taxes because she knows that the odds of being audited by the government are very low. Which element of the fraud triangle is most clearly involved?

Some companies use a "balanced scorecard" to judge managers' performance. The balanced scorecard includes financial measures as well as measures of customer satisfaction, productivity, and company training and innovation efforts. The use of a balanced scorecard can be seen as

A "game against nature" is a game where there are two parties, each of whom acts strategically.

An example of people trying to avoid measurement would be

How Accounting Works

Selecting Your Business Structure

Choosing Accounting Software

Managing Your Accounts

Accounting for Inventory

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Setting up New Team Members

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters

Exam 6: Doing Business Day to Day

The text discusses something called the "fraud triangle."

Historically, one reason the SEC has favored historical cost accounting is because this method is easy to verify.

Historically, the SEC has tended to favor accounting methods that are less conservative, because the SEC wants U.S. companies to look highly profitable.

"Budgetary slack" is an earnings management technique that involves recording excessive liability reserves when times are good, and correcting the excessive reserves in years with lower profits.

A term for strategies that companies use to make their balance sheets look better is "window dressing."

A company decides to meet its profit target for 2016 by claiming that certain sales that it actually made and shipped in January of 2017 were made in December of 2016. This is an example of

Which of the following factors is, according to AICPA, an example of incentives and pressures to commit fraud?

The earnings management technique that is being used when a company records an overly large liability for a potential lawsuit against it, during a year when profits are good, and later corrects this liability in a year with low profits, is

Which of the following factors is, according to AICPA, an example of opportunities to commit fraud?

Research on company business practices finds that it is only a minority of companies that rigidly compare company performance to pre-established budgets, without making any allowances for changes that occurred during the year.

The FASB has repeatedly said that its objective, in setting standards, is to try to help move society toward certain particular goals, including a fairer allocation of resources.

A taxpayer decides to cheat on taxes because she knows that the odds of being audited by the government are very low. Which element of the fraud triangle is most clearly involved?

Some companies use a "balanced scorecard" to judge managers' performance. The balanced scorecard includes financial measures as well as measures of customer satisfaction, productivity, and company training and innovation efforts. The use of a balanced scorecard can be seen as

A "game against nature" is a game where there are two parties, each of whom acts strategically.

An example of people trying to avoid measurement would be

How Accounting Works

Selecting Your Business Structure

Choosing Accounting Software

Managing Your Accounts

Accounting for Inventory

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Setting up New Team Members

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters