Question 1

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 2

The Sino-Forest case centered around the:

Accepted Answer

A) Acceleration of revenue due to channel stuffing arrangements 
B) Use of cookie jar reserves to manage earnings 
C) Existence of assets 
D) Contingent liabilities due to forestry fires 
A) Acceleration of revenue due to channel stuffing arrangements 
B) Use of cookie jar reserves to manage earnings 
C) Existence of assets 
D) Contingent liabilities due to forestry fires

Question 3

Sarah's concern in the Solutions Network case is:

Accepted Answer

A) Expenses were delayed at year-end to manage earnings 
B) Revenue was recorded at year-end before the agreement with the customer was finalized 
C) Revenue was accelerated into an earlier period through channel stuffing 
D) Off-balance sheet entities were not disclosed 
A) Expenses were delayed at year-end to manage earnings 
B) Revenue was recorded at year-end before the agreement with the customer was finalized 
C) Revenue was accelerated into an earlier period through channel stuffing 
D) Off-balance sheet entities were not disclosed

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 reporting discretion has declined over time,and that current standards somewhat restrain reporting high quality earnings 
C) CFOs estimate that roughly 20 percent of firms manage earnings and the typical misrepresentation for such firms is about 10 percent of reported EPS 
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 reporting discretion has declined over time,and that current standards somewhat restrain reporting high quality earnings 
C) CFOs estimate that roughly 20 percent of firms manage earnings and the typical misrepresentation for such firms is about 10 percent of reported EPS 
D) CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split

Question 5

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 6

The concept that earnings management might align with conservative versus aggressive reporting is known as the:

Accepted Answer

A) Earnings judgment 
B) Earnings accruals 
C) Earnings continuum 
D) Earnings manipulations 
A) Earnings judgment 
B) Earnings accruals 
C) Earnings continuum 
D) Earnings manipulations

Question 7

The main difference between a discretionary and nondiscretionary accrual is:

Accepted Answer

A) Discretionary accruals are items that management has full control over 
B) Discretionary accruals are based on changes in the fundamental performance of the firm 
C) Discretionary accruals arise from transactions considered normal for the firm 
D) Discretionary accruals always lead to an increase in earnings 
A) Discretionary accruals are items that management has full control over 
B) Discretionary accruals are based on changes in the fundamental performance of the firm 
C) Discretionary accruals arise from transactions considered normal for the firm 
D) Discretionary accruals always lead to an increase in earnings

Question 8

Which of the following was not a technique used by Enron to manage earnings?

Accepted Answer

A) Used reserves to increase earnings when reported amounts were too low 
B) Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years 
C) Used mark-to-market estimates to inflate earnings in violation of GAAP 
D) Selected which operating assets to "sell" to the SPEs,affecting the gain on transfer and earnings effect 
A) Used reserves to increase earnings when reported amounts were too low 
B) Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years 
C) Used mark-to-market estimates to inflate earnings in violation of GAAP 
D) Selected which operating assets to "sell" to the SPEs,affecting the gain on transfer and earnings effect

Question 9

Which of the following partnerships that Enron created eventually lead to its demise?

Accepted Answer

A) JEDI 
B) Cactus 
C) Chewco 
D) Ironman 
A) JEDI 
B) Cactus 
C) Chewco 
D) Ironman

Question 10

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox case?

Accepted Answer

A) Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price 
B) Xerox top management overrode the internal control to manipulate earnings 
C) Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately $3 billion in equipment revenues 
D) Xerox recognized a greater amount of revenue on leases in early years than warranted and didn't break out revenues that should have been deferred and recognized in future years 
A) Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price 
B) Xerox top management overrode the internal control to manipulate earnings 
C) Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately $3 billion in equipment revenues 
D) Xerox recognized a greater amount of revenue on leases in early years than warranted and didn't break out revenues that should have been deferred and recognized in future years

Question 11

Which of the following has NOT been found to be a measure of a non-GAAP financial metric?

Accepted Answer

A) Earnings before depreciation and amortization 
B) Operating income before certain non-recurring expense or revenue items 
C) EBITDA 
D) GAAP earnings 
A) Earnings before depreciation and amortization 
B) Operating income before certain non-recurring expense or revenue items 
C) EBITDA 
D) GAAP earnings

Question 12

March 26,2015,A San Francisco federal judge allowed Zynga Inc.shareholders to proceed with their class-action lawsuit alleging the online gaming company failed to disclose slumping revenue growth before its market value declined by several billion dollars in 2012.According to the plaintiffs,Zynga concealed declining user activity,masked how changes in a Facebook platform for its games would affect demand,and inflated its 2012 revenue forecast.The shares fell from a peak of $15.91 on March 2,2012 to below $3 on July 26,2012,when Zynga posted disappointing earnings and cut its outlook.
Zynga says it recognizes revenue after it determines that a service has been provided to a player and the collection of fees is "reasonably assured." But determining that a service has been provided seems a little more complicated than it would appear,because Zynga needs to differentiate between the types of goods it sells its players.
Zynga,which makes games like FarmVille and Mafia Wars for social networking platforms like Facebook,classifies the game items it sells to players as either "consumable" or "durable" goods.The former category is for goods that players can immediately use,like energy in the game CityVille; the latter is for goods that players buy and keep for the duration of the game,such as tractors in FarmVille.
The company recognizes revenue for the consumable goods as soon as they are consumed.The durable goods present a problem,however,because things like virtual tractors don't depreciate,but potentially live forever,and the company is obligated to ensure that the virtual game pieces continue to exist in the game world.That's forced Zynga to come up with a system of determining how long that may be.
Discuss the challenges of recognizing revenue for the online products/services Zynga provides to its customers.Draw an analogy between how Zynga should go about recognizing revenue and when gift cards are sold to be used at a later date.

Accepted Answer

The issue is whether revenue should be r

Question 13

What is the SEC's position on companies that communicate with investors on social media?

Accepted Answer

A) It is illegal to do so 
B) It is legal so long as companies inform investors which outlets they intend to use 
C) It is legal so long as the postings are restricted to Facebook 
D) There are no limitations on companies communicating through social media 
A) It is illegal to do so 
B) It is legal so long as companies inform investors which outlets they intend to use 
C) It is legal so long as the postings are restricted to Facebook 
D) There are no limitations on companies communicating through social media

Question 14

Analyze and discuss when earnings management may be an ethical practice and when it is an unethical practice.

Accepted Answer

Earnings management that is motivated by

Question 15

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 16

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 17

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 18

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

Accepted Answer

A) "Earnings management" is done to project smoother earnings from year to year 
B) Management emphasizes achieving long-term results to meet financial goals 
C) Management uses "cookie-jar reserves each year" 
D) Executives manipulate the earnings in order to match their predetermined target 
A) "Earnings management" is done to project smoother earnings from year to year 
B) Management emphasizes achieving long-term results to meet financial goals 
C) Management uses "cookie-jar reserves each year" 
D) Executives manipulate the earnings in order to match their predetermined target

Question 19

The Xerox case deals with accounting for multiple deliverables.Explain what this means in the context of the Xerox fraud.

Accepted Answer

The challenge of transactions with multi

Question 20

All of the following are examples of "Recording revenue too soon or of questionable quality" except:

Accepted Answer

A) Recording sales that lack economic substance 
B) Recording revenue when future services remain to be provided 
C) Recording revenue before shipment or before the customer's unconditional acceptance 
D) Recording revenue even though the customer is not obligated to pay 
A) Recording sales that lack economic substance 
B) Recording revenue when future services remain to be provided 
C) Recording revenue before shipment or before the customer's unconditional acceptance 
D) Recording revenue even though the customer is not obligated to pay

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

The Sino-Forest case centered around the:

Sarah's concern in the Solutions Network case is:

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

The main accounting issues in the Nortel Networks case were:

The concept that earnings management might align with conservative versus aggressive reporting is known as the:

The main difference between a discretionary and nondiscretionary accrual is:

Which of the following was not a technique used by Enron to manage earnings?

Which of the following partnerships that Enron created eventually lead to its demise?

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox case?

Which of the following has NOT been found to be a measure of a non-GAAP financial metric?

What is the SEC's position on companies that communicate with investors on social media?

Analyze and discuss when earnings management may be an ethical practice and when it is an unethical practice.

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?

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

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

The Xerox case deals with accounting for multiple deliverables.Explain what this means in the context of the Xerox fraud.

All of the following are examples of "Recording revenue too soon or of questionable quality" except:

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

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

The Sino-Forest case centered around the:

Sarah's concern in the Solutions Network case is:

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

The main accounting issues in the Nortel Networks case were:

The concept that earnings management might align with conservative versus aggressive reporting is known as the:

The main difference between a discretionary and nondiscretionary accrual is:

Which of the following was not a technique used by Enron to manage earnings?

Which of the following partnerships that Enron created eventually lead to its demise?

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox case?

Which of the following has NOT been found to be a measure of a non-GAAP financial metric?

What is the SEC's position on companies that communicate with investors on social media?

Analyze and discuss when earnings management may be an ethical practice and when it is an unethical practice.

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?

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

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

The Xerox case deals with accounting for multiple deliverables.Explain what this means in the context of the Xerox fraud.

All of the following are examples of "Recording revenue too soon or of questionable quality" except:

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