Question 1

SAS No.107 identifies the following aspects of disclosure amounts deemed to be material except for:

Accepted Answer

A) Disclosing an item in one year but not in the next year 
B) Qualitative aspects of the disclosure 
C) Quantitative significance of the disclosure 
D) Professional judgment 
A) Disclosing an item in one year but not in the next year 
B) Qualitative aspects of the disclosure 
C) Quantitative significance of the disclosure 
D) Professional judgment

Question 2

Assume you were in Sherron Watkins' position and you informed Ken Lay that the company might implode as a result of the accounting scandal.After an investigation by the lawyers who said there was nothing to worry about, Lay told you he would take no steps to act on your concerns.Use the relevant elements of the decision making model described in chapter 2 including stakeholder and ethical considerations and decide on a course of action for Watkins.

Accepted Answer

As Sherron Watkins, it is important to c

Question 3

Which of the following is NOT a qualitative factor when assessing materiality?

Accepted Answer

A) A misstatement that changes a loss into income or vice versa 
B) The existence of statutory or regulator reporting requirements that affect materiality thresholds 
C) The potential effect of the misstatement on trends, especially trends in profitability 
D) The use of simplistic numerical thresholds and rules of thumb 
A) A misstatement that changes a loss into income or vice versa 
B) The existence of statutory or regulator reporting requirements that affect materiality thresholds 
C) The potential effect of the misstatement on trends, especially trends in profitability 
D) The use of simplistic numerical thresholds and rules of thumb

Question 4

Which of the following earnings management techniques are NOT presented in 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 5

The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that:

Accepted Answer

A) His actions were protected by attorney-client privilege 
B) While some of his actions may have turned out to be wrong, there never was an intent to defraud 
C) While some of his actions may have turned out to be wrong, he did the best that he could to save the company from certain bankruptcy 
D) He adhere to the business judgment rule and met his fiduciary obligations
Essay Questions 
A) His actions were protected by attorney-client privilege 
B) While some of his actions may have turned out to be wrong, there never was an intent to defraud 
C) While some of his actions may have turned out to be wrong, he did the best that he could to save the company from certain bankruptcy 
D) He adhere to the business judgment rule and met his fiduciary obligations
Essay Questions

Question 6

The quality of financial reporting is an important issue in the chapter.Explain how and why the quality of financial reporting is an underlying issue in the frauds discussed in the chapter.

Accepted Answer

The quality of financial reporting is an

Question 7

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 8

Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."?

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 9

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) The ideal pattern of earnings is volatility each year over a period of time. 
C) To smooth net income over time. 
D) To maximize compensation including 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) The ideal pattern of earnings is volatility each year over a period of time. 
C) To smooth net income over time. 
D) To maximize compensation including bonuses.

Question 10

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."?

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 11

In the Glass Lewis survey of financial statements, a somewhat surprising possible cause of the decline in restatements in 2008 may have been due to:

Accepted Answer

A) Internal control requirements under generally accepted auditing standards 
B) Identifying materiality amounts based on both quantitative and qualitative factors 
C) More ethical management 
D) Relaxation of materiality standards by the SEC 
A) Internal control requirements under generally accepted auditing standards 
B) Identifying materiality amounts based on both quantitative and qualitative factors 
C) More ethical management 
D) Relaxation of materiality standards by the SEC

Question 12

Which of the statement regarding PCAOB is NOT true?

Accepted Answer

A) PCAOB stands for Public Company Accounting Oversight Board. 
B) PCAOB assumes the peer review function over registered CPA firms. 
C) PCAOB was established before the accounting scandal of Enron. 
D) PCAOB protects the public interest by oversight of independent audits. 
A) PCAOB stands for Public Company Accounting Oversight Board. 
B) PCAOB assumes the peer review function over registered CPA firms. 
C) PCAOB was established before the accounting scandal of Enron. 
D) PCAOB protects the public interest by oversight of independent audits.

Question 13

The element of the fraud triangle most directly dealt with in the Excello Telecommunications case is:

Accepted Answer

A) Pressure/Incentives 
B) Opportunity 
C) Rationalization 
D) Materiality 
A) Pressure/Incentives 
B) Opportunity 
C) Rationalization 
D) Materiality

Question 14

The best definition of a financial restatement is:

Accepted Answer

A) A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported 
B) A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period 
C) An adjustment of financial information due to an error correction 
D) All are part of the definition 
A) A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported 
B) A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period 
C) An adjustment of financial information due to an error correction 
D) All are part of the definition

Question 15

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

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 16

The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for:

Accepted Answer

A) Bright line rules are useful in making materiality judgments. 
B) Bright line rules are not really useful in making materiality judgments. 
C) The disclosure provided on restatements is not adequate. 
D) One of the major costs of restatements is the amount of time between the restatement announcement and the final resolution of the restatement. 
A) Bright line rules are useful in making materiality judgments. 
B) Bright line rules are not really useful in making materiality judgments. 
C) The disclosure provided on restatements is not adequate. 
D) One of the major costs of restatements is the amount of time between the restatement announcement and the final resolution of the restatement.

Question 17

Which of the following is NOT considered "earnings management"?

Accepted Answer

A) "Earnings management" is to project smoother earnings from year to year. 
B) Managements emphasis on achieving long-term results to meet their financial goals. 
C) A common practice of "earnings management" is to use "cookie-jar reserves." 
D) The executives manipulate the earnings in order to match their predetermined target. 
A) "Earnings management" is to project smoother earnings from year to year. 
B) Managements emphasis on achieving long-term results to meet their financial goals. 
C) A common practice of "earnings management" is to use "cookie-jar reserves." 
D) The executives manipulate the earnings in order to match their predetermined target.

Question 18

Use the fraud triangle to evaluate the actions by those in top management at Enron as the accounting fraud unfolded.

Accepted Answer

The fraud triangle is a framework used t

Question 19

The accounting rule for deferring profit on a sale-leaseback agreement such as the one dealt with in the Florida Transportation case can best be described as:

Accepted Answer

A) The seller-lessee can defer profit on a sale-leaseback transaction if the seller gives up substantially all of the use of the property through the leaseback. 
B) The seller-lessee can defer profit on a sale-leaseback transaction if the seller retains substantially all of the use of the property through the leaseback. 
C) Profit can be deferred if the upfront costs exceed future revenues. 
D) Profit can be deferred if initial revenue exceeds future costs. 
A) The seller-lessee can defer profit on a sale-leaseback transaction if the seller gives up substantially all of the use of the property through the leaseback. 
B) The seller-lessee can defer profit on a sale-leaseback transaction if the seller retains substantially all of the use of the property through the leaseback. 
C) Profit can be deferred if the upfront costs exceed future revenues. 
D) Profit can be deferred if initial revenue exceeds future costs.

Question 20

There are several aspects of 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) Prohibiting the provision of internal audit service for audit clients. 
B) Off-balance-sheet financing activities must be disclosed in the notes to the financial statements. 
C) Related-party transactions require disclosure in the notes. 
D) All of the above. 
A) Prohibiting the provision of internal audit service for audit clients. 
B) Off-balance-sheet financing activities must be disclosed in the notes to the financial statements. 
C) Related-party transactions require disclosure in the notes. 
D) All of the above.

SAS No.107 identifies the following aspects of disclosure amounts deemed to be material except for:

Which of the following is NOT a qualitative factor when assessing materiality?

Which of the following earnings management techniques are NOT presented in Lucent Technologies, Inc.'s case?

The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that:

The quality of financial reporting is an important issue in the chapter.Explain how and why the quality of financial reporting is an underlying issue in the frauds discussed in the chapter.

The main accounting issues in the Nortel Networks case were:

Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."?

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

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."?

In the Glass Lewis survey of financial statements, a somewhat surprising possible cause of the decline in restatements in 2008 may have been due to:

Which of the statement regarding PCAOB is NOT true?

The element of the fraud triangle most directly dealt with in the Excello Telecommunications case is:

The best definition of a financial restatement is:

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

The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for:

Which of the following is NOT considered "earnings management"?

Use the fraud triangle to evaluate the actions by those in top management at Enron as the accounting fraud unfolded.

The accounting rule for deferring profit on a sale-leaseback agreement such as the one dealt with in the Florida Transportation case can best be described as:

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

Ethical Reasoning Implications for Accounting

Accountants Ethical Decision Process and Professional Judgment

Corporate Governance and Ethical Management

Aicpa Code of Professional Conduct

Audit Responsibilities and Accounting Fraud

Legal and Regulatory Obligations in an Ethical Framework

International Financial Reporting: Ethics and Corporate Governance Considerations

Filters

Exam 7: Earnings Management and the Quality of Financial Reporting

SAS No.107 identifies the following aspects of disclosure amounts deemed to be material except for:

Which of the following is NOT a qualitative factor when assessing materiality?

Which of the following earnings management techniques are NOT presented in Lucent Technologies, Inc.'s case?

The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that:

The quality of financial reporting is an important issue in the chapter.Explain how and why the quality of financial reporting is an underlying issue in the frauds discussed in the chapter.

The main accounting issues in the Nortel Networks case were:

Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."?

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

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."?

In the Glass Lewis survey of financial statements, a somewhat surprising possible cause of the decline in restatements in 2008 may have been due to:

Which of the statement regarding PCAOB is NOT true?

The element of the fraud triangle most directly dealt with in the Excello Telecommunications case is:

The best definition of a financial restatement is:

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

The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for:

Which of the following is NOT considered "earnings management"?

Use the fraud triangle to evaluate the actions by those in top management at Enron as the accounting fraud unfolded.

The accounting rule for deferring profit on a sale-leaseback agreement such as the one dealt with in the Florida Transportation case can best be described as:

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

Ethical Reasoning Implications for Accounting

Accountants Ethical Decision Process and Professional Judgment

Corporate Governance and Ethical Management

Aicpa Code of Professional Conduct

Audit Responsibilities and Accounting Fraud

Legal and Regulatory Obligations in an Ethical Framework

International Financial Reporting: Ethics and Corporate Governance Considerations

Filters