Question 1

Explain what is meant by "quality of earnings" including links to earnings management and audit committee responsibilities in evaluating the quality of earnings?

Accepted Answer

The terms "quality of earnings" and "ear

Question 2

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 3

Which of the following authors(s) link earnings management to choices made in determining earnings that may comprise aggressive,but acceptable,accounting estimates and judgments,as compared to fraudulent practices that are clearly intended to deceive others?

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 4

Needles suggests that making judgments about what earnings management is becomes difficult because:

Accepted Answer

A) It depends on management's intentions 
B) There is no clear limit beyond which a choice is clearly unethical 
C) A perfectly routine accounting estimate may be illegal and unethical 
D) All of the above 
A) It depends on management's intentions 
B) There is no clear limit beyond which a choice is clearly unethical 
C) A perfectly routine accounting estimate may be illegal and unethical 
D) All of the above

Question 5

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 6

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 7

In the Matrixx Initiatives v.Siracusano case,the Supreme Court adopted the position about materiality that:

Accepted Answer

A) It should always be determined only through qualitative evaluations 
B) It should always be determined through quantitative evaluations 
C) It should always be determined by considering whether the amount affects past financial statements 
D) It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment 
A) It should always be determined only through qualitative evaluations 
B) It should always be determined through quantitative evaluations 
C) It should always be determined by considering whether the amount affects past financial statements 
D) It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment

Question 8

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 9

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 10

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 11

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 12

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

Question 13

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements.Kelly is assigned the task of defining it in the context of an amount being an estimate.Which of the following statements should NOT be used by Kelly in her description?

Accepted Answer

A) Good faith attempt to gather evidence to support the amount 
B) Clear disclosure of an amount as an estimate 
C) The nature and limitations of the estimating process 
D) Error free procedures in selecting and applying an appropriate process for developing the estimate 
A) Good faith attempt to gather evidence to support the amount 
B) Clear disclosure of an amount as an estimate 
C) The nature and limitations of the estimating process 
D) Error free procedures in selecting and applying an appropriate process for developing the estimate

Question 14

"Cookie jar reserves" can best be described as:

Accepted Answer

A) Buying a lot of chocolate chip cookies,storing them for when you have a hunger attack,and then releasing them into your stomach 
B) Overstating or understating allowances and reversing amounts in the future to smooth out net income over time 
C) Accelerating the recording of revenues into an earlier year than is warranted 
D) Delaying the recording of expenses to a later year to boost income in the current year 
A) Buying a lot of chocolate chip cookies,storing them for when you have a hunger attack,and then releasing them into your stomach 
B) Overstating or understating allowances and reversing amounts in the future to smooth out net income over time 
C) Accelerating the recording of revenues into an earlier year than is warranted 
D) Delaying the recording of expenses to a later year to boost income in the current year

Question 15

Accruals that are based on estimated changes in fundamental economic performance of the firm are:

Accepted Answer

A) Discretionary accruals 
B) Nondiscretionary accrual 
C) Operating accruals 
D) Cookie jar accruals 
A) Discretionary accruals 
B) Nondiscretionary accrual 
C) Operating accruals 
D) Cookie jar accruals

Question 16

The Harrison Industries case deals with:

Accepted Answer

A) Using non-GAAP measures of earnings 
B) Acceptability of recording unpaid severance accruals 
C) Using EBITDA to obscure earnings 
D) All of the above. 
A) Using non-GAAP measures of earnings 
B) Acceptability of recording unpaid severance accruals 
C) Using EBITDA to obscure earnings 
D) All of the above.

Question 17

Which of the following was not an accounting issue in the Sunbeam case?

Accepted Answer

A) Cookie jar reserves 
B) Channel stuffing 
C) Bill and hold sales 
D) Swap transactions 
A) Cookie jar reserves 
B) Channel stuffing 
C) Bill and hold sales 
D) Swap transactions

Question 18

In the Hertz fraud,the company tried to explain its use of non-GAAP financial measures by:

Accepted Answer

A) Comparing them to aggressive but ethical measurements 
B) Comparing the validity of the amounts to pre-tax GAAP income 
C) Having a conference call with financial analysts to explain their position 
D) Correcting problems in internal controls 
A) Comparing them to aggressive but ethical measurements 
B) Comparing the validity of the amounts to pre-tax GAAP income 
C) Having a conference call with financial analysts to explain their position 
D) Correcting problems in internal controls

Question 19

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 20

Auditors need to be attuned to the red flags that fraud may exist because:

Accepted Answer

A) Materiality judgments are based on red flags identifying possible material misstatements 
B) Audit opinions must be withdrawn when red flags indicate fraud may exist 
C) Overly-aggressive accounting and outright manipulation of earnings may exist 
D) All of the above 
A) Materiality judgments are based on red flags identifying possible material misstatements 
B) Audit opinions must be withdrawn when red flags indicate fraud may exist 
C) Overly-aggressive accounting and outright manipulation of earnings may exist 
D) All of the above

Explain what is meant by "quality of earnings" including links to earnings management and audit committee responsibilities in evaluating the quality of 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?

Which of the following authors(s) link earnings management to choices made in determining earnings that may comprise aggressive,but acceptable,accounting estimates and judgments,as compared to fraudulent practices that are clearly intended to deceive others?

Needles suggests that making judgments about what earnings management is becomes difficult because:

The SEC requires stealth restatements to be:

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?"

In the Matrixx Initiatives v.Siracusano case,the Supreme Court adopted the position about materiality that:

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?

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

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

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements.Kelly is assigned the task of defining it in the context of an amount being an estimate.Which of the following statements should NOT be used by Kelly in her description?

"Cookie jar reserves" can best be described as:

Accruals that are based on estimated changes in fundamental economic performance of the firm are:

The Harrison Industries case deals with:

Which of the following was not an accounting issue in the Sunbeam case?

In the Hertz fraud,the company tried to explain its use of non-GAAP financial measures by:

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?"

Auditors need to be attuned to the red flags that fraud may exist because:

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

Explain what is meant by "quality of earnings" including links to earnings management and audit committee responsibilities in evaluating the quality of 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?

Which of the following authors(s) link earnings management to choices made in determining earnings that may comprise aggressive,but acceptable,accounting estimates and judgments,as compared to fraudulent practices that are clearly intended to deceive others?

Needles suggests that making judgments about what earnings management is becomes difficult because:

The SEC requires stealth restatements to be:

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?"

In the Matrixx Initiatives v.Siracusano case,the Supreme Court adopted the position about materiality that:

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?

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

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

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements.Kelly is assigned the task of defining it in the context of an amount being an estimate.Which of the following statements should NOT be used by Kelly in her description?

"Cookie jar reserves" can best be described as:

Accruals that are based on estimated changes in fundamental economic performance of the firm are:

The Harrison Industries case deals with:

Which of the following was not an accounting issue in the Sunbeam case?

In the Hertz fraud,the company tried to explain its use of non-GAAP financial measures by:

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?"

Auditors need to be attuned to the red flags that fraud may exist because:

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