Question 1

Which of the following groups on the earnings management continuum are always considered ethical?

Accepted Answer

A)  Savvy transaction timing and aggressive accounting 
B)  Aggressive accounting and fraudulent reporting 
C)  Deceptive accounting and savvy transaction timing 
D)  There is not a clear definition as to which of these are ethical and which are not 
A)  Savvy transaction timing and aggressive accounting 
B)  Aggressive accounting and fraudulent reporting 
C)  Deceptive accounting and savvy transaction timing 
D)  There is not a clear definition as to which of these are ethical and which are not

Question 2

Which of the following typically involves the use of non-GAAP accounting?

Accepted Answer

A)  Delaying a transaction to be recorded in a more advantageous quarter 
B)  Changing an interest rate and disclosing it in the financial statements 
C)  Recording expenses as assets 
D)  Changing an interest rate but not disclosing it in the financial statements 
A)  Delaying a transaction to be recorded in a more advantageous quarter 
B)  Changing an interest rate and disclosing it in the financial statements 
C)  Recording expenses as assets 
D)  Changing an interest rate but not disclosing it in the financial statements

Question 3

As William is preparing the end of year financial statements, he has been asked to review the accrual judgments and estimates to see if the originally calculated net loss can be changed to a net profit. This is an example of

Accepted Answer

A)  Window dressing 
B)  Meeting internal targets 
C)  Income smoothing 
D)  Meeting external expectations 
A)  Window dressing 
B)  Meeting internal targets 
C)  Income smoothing 
D)  Meeting external expectations

Question 4

List the five major concerns that companies must keep in mind when designing their internal control system.

Accepted Answer

The answer of List the five major concerns that companies...

Question 5

External audits are performed by

Accepted Answer

A)  Certified Internal Auditors 
B)  Certified Public Accountants 
C)  Certified Financial Analysts 
D)  Certified Management Accountants 
A)  Certified Internal Auditors 
B)  Certified Public Accountants 
C)  Certified Financial Analysts 
D)  Certified Management Accountants

Question 6

A company purchased a two-year insurance policy on September 1, debiting Prepaid Insurance for the full amount. If no adjusting entry is made at the end of the year, how does this affect the year-end financial statements?

Accepted Answer

A)  Overstates revenue 
B)  Overstates expenses 
C)  Overstates assets 
D)  Understates owner's equity 
A)  Overstates revenue 
B)  Overstates expenses 
C)  Overstates assets 
D)  Understates owner's equity

Question 7

Which of the following audit processes is used primarily by external auditors?

Accepted Answer

A)  Sampling 
B)  Interviews 
C)  Observations 
D)  Confirmation 
A)  Sampling 
B)  Interviews 
C)  Observations 
D)  Confirmation

Question 8

When does the Securities and Exchange Commission (SEC) typically require a company to submit a registration statement to the SEC for approval?

Accepted Answer

A)  When the company receives a qualified opinion from the external auditors 
B)  When the company receives a disclaimer of opinion from the external auditors 
C)  When the company issues new debt or stock securities to the public 
D)  When the company has experienced a major fraud 
A)  When the company receives a qualified opinion from the external auditors 
B)  When the company receives a disclaimer of opinion from the external auditors 
C)  When the company issues new debt or stock securities to the public 
D)  When the company has experienced a major fraud

Question 9

The GAAP Oval best represents

Accepted Answer

A)  The fact that only one true earnings number exists. 
B)  The flexibility managers have within GAAP to report one earnings number from among many possibilities. 
C)  The philosophy that earnings management within limits is ethical. 
D)  The fact that GAAP is not subject to interpretation. 
A)  The fact that only one true earnings number exists. 
B)  The flexibility managers have within GAAP to report one earnings number from among many possibilities. 
C)  The philosophy that earnings management within limits is ethical. 
D)  The fact that GAAP is not subject to interpretation.

Question 10

As William is preparing the end of year financial statements, he has been asked to reconsider the timing of revenues and expenses in order to report less volatile earnings. This is an example of

Accepted Answer

A)  Window dressing 
B)  Meeting internal targets 
C)  Income smoothing 
D)  Meeting external expectations 
A)  Window dressing 
B)  Meeting internal targets 
C)  Income smoothing 
D)  Meeting external expectations

Question 11

Which of the following is typically NOT a reason for managing reported earnings?

Accepted Answer

A)  Meet external expectations 
B)  Desire for personal gain 
C)  Meet internal earnings targets 
D)  Income smoothing 
A)  Meet external expectations 
B)  Desire for personal gain 
C)  Meet internal earnings targets 
D)  Income smoothing

Question 12

Which of the following is NOT a reason for problems occurring in the financial statements?

Accepted Answer

A)  Fraud 
B)  Disagreement 
C)  Errors 
D)  Safeguards 
A)  Fraud 
B)  Disagreement 
C)  Errors 
D)  Safeguards

Question 13

Estimates are used in many instances when recording a company's results of operations. Which of the following would NOT require an estimate to be made?

Accepted Answer

A)  Uncollectible accounts 
B)  Contract percentage of completion 
C)  Wages earned 
D)  Expected life of machinery 
A)  Uncollectible accounts 
B)  Contract percentage of completion 
C)  Wages earned 
D)  Expected life of machinery

Question 14

During the end of year audit, the auditors found the following errors in Blossom Company's financial statements:
  
Prepare the necessary journal entries to correct each error (omit explanations).

Accepted Answer

Prepare the necessar

Question 15

Which of the following is generally NOT performed by an accounting clerk?

Accepted Answer

A)  Recording monthly insurance expense 
B)  Making a payment on an account payable 
C)  Authorizing credit to customers 
D)  Authorizing dividends to be paid 
A)  Recording monthly insurance expense 
B)  Making a payment on an account payable 
C)  Authorizing credit to customers 
D)  Authorizing dividends to be paid

Question 16

The Sarbanes-Oxley Act establishes

Accepted Answer

A)  Independent oversight of auditors 
B)  Constraints on auditors 
C)  Constraints on company management 
D)  All of these are correct 
A)  Independent oversight of auditors 
B)  Constraints on auditors 
C)  Constraints on company management 
D)  All of these are correct

Question 17

Which of the following is a poor internal accounting control feature?

Accepted Answer

A)  Division of work 
B)  Combining accountability with custodianship 
C)  Rotation of personnel 
D)  Internal auditing 
A)  Division of work 
B)  Combining accountability with custodianship 
C)  Rotation of personnel 
D)  Internal auditing

Question 18

Fraud is

Accepted Answer

A)  The deceptive concealment of transactions 
B)  The creation of fictitious transactions 
C)  Unintentional errors 
D)  Both the deceptive concealment of transactions and the creation of fictitious transactions 
A)  The deceptive concealment of transactions 
B)  The creation of fictitious transactions 
C)  Unintentional errors 
D)  Both the deceptive concealment of transactions and the creation of fictitious transactions

Question 19

Match between columns
                        Premises: Physical safeguards
Independent checks
Internal control structure
Control activities
Preventative controls
Audit committee
Control environment
Segregation of duties
Detective controls
Organizational structure

Accepted Answer

The Answer of The actions, policies, and procedures that reflect is...

Question 20

Research has shown that numerous companies manage their earnings. A variety of earnings management techniques are available ranging from income smoothing to outright fraud.
Define income smoothing and explain how it is implemented.

Accepted Answer

Income smoothing is the careful timing o

Exam 5: Internal Controls: Ensuring the Integrity of Financial Information

Which of the following groups on the earnings management continuum are always considered ethical?

Which of the following typically involves the use of non-GAAP accounting?

As William is preparing the end of year financial statements, he has been asked to review the accrual judgments and estimates to see if the originally calculated net loss can be changed to a net profit. This is an example of

List the five major concerns that companies must keep in mind when designing their internal control system.

External audits are performed by

A company purchased a two-year insurance policy on September 1, debiting Prepaid Insurance for the full amount. If no adjusting entry is made at the end of the year, how does this affect the year-end financial statements?

Which of the following audit processes is used primarily by external auditors?

When does the Securities and Exchange Commission (SEC) typically require a company to submit a registration statement to the SEC for approval?

The GAAP Oval best represents

As William is preparing the end of year financial statements, he has been asked to reconsider the timing of revenues and expenses in order to report less volatile earnings. This is an example of

Which of the following is typically NOT a reason for managing reported earnings?

Which of the following is NOT a reason for problems occurring in the financial statements?

Estimates are used in many instances when recording a company's results of operations. Which of the following would NOT require an estimate to be made?

During the end of year audit, the auditors found the following errors in Blossom Company's financial statements: Prepare the necessary journal entries to correct each error (omit explanations).

Which of the following is generally NOT performed by an accounting clerk?

The Sarbanes-Oxley Act establishes

Which of the following is a poor internal accounting control feature?

Fraud is

Research has shown that numerous companies manage their earnings. A variety of earnings management techniques are available ranging from income smoothing to outright fraud. Define income smoothing and explain how it is implemented.

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Investments: Debt and Equity Securities

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Relevant Information and Decisions

Capital Investment Decisions

New Measures of Performance

Filters