Question 1

With regards to inventory which of the following would be classed as conservative accounting?

Accepted Answer

A) Consistently and quickly applying the lower of cost and net realisable value rule. 
B) Being slow to write down slow-moving inventory. 
C) Still recording obsolete inventory as an asset. 
D) Overstating inventory by including non-existent inventory in accounts. 
A) Consistently and quickly applying the lower of cost and net realisable value rule. 
B) Being slow to write down slow-moving inventory. 
C) Still recording obsolete inventory as an asset. 
D) Overstating inventory by including non-existent inventory in accounts. A

Question 2

Earnings are important because:

Accepted Answer

A) Earnings assist in predicting future cash flows. 
B) Increased earnings signal an increase in equity value. 
C) Earnings are used to assess management performance. 
D) All of the above. 
A) Earnings assist in predicting future cash flows. 
B) Increased earnings signal an increase in equity value. 
C) Earnings are used to assess management performance. 
D) All of the above. D

Question 3

Which of the following is NOT likely to be interested in earnings information?

Accepted Answer

A) Customers. 
B) Shareholders. 
C) Lenders. 
D) None of the above,i.e.they are all interested in earnings information. 
A) Customers. 
B) Shareholders. 
C) Lenders. 
D) None of the above,i.e.they are all interested in earnings information. D

Question 4

Which of the following board characteristics are likely to reduce earnings management?

Accepted Answer

A) The existence of an audit committee. 
B) A mix of monitoring and expertise skills. 
C) More independent directors. 
D) All of the above. 
A) The existence of an audit committee. 
B) A mix of monitoring and expertise skills. 
C) More independent directors. 
D) All of the above.

Question 5

Which of the following methods is NOT commonly used to manipulate earnings:

Accepted Answer

A) Incorrect classification of current liabilities as non-current. 
B) Accounting policy choice. 
C) Accelerating expenses. 
D) Aggressive accounting for accruals. 
A) Incorrect classification of current liabilities as non-current. 
B) Accounting policy choice. 
C) Accelerating expenses. 
D) Aggressive accounting for accruals.

Question 6

Which of the following techniques is NOT generally useful to smooth income?

Accepted Answer

A) Using fair value accounting. 
B) Varying the provision for warranties. 
C) Hedging of financial instruments. 
D) None of the above,they could all be used to smooth income. 
A) Using fair value accounting. 
B) Varying the provision for warranties. 
C) Hedging of financial instruments. 
D) None of the above,they could all be used to smooth income.

Question 7

Which of the following is most likely to be true?

Accepted Answer

A) An incoming CEO would prefer to manage earnings downward in their first year. 
B) An existing CEO facing removal is likely to manage earnings downwards. 
C) An incoming CEO following a forced departure will find it easier to manage earnings upwards. 
D) None of the above. 
A) An incoming CEO would prefer to manage earnings downward in their first year. 
B) An existing CEO facing removal is likely to manage earnings downwards. 
C) An incoming CEO following a forced departure will find it easier to manage earnings upwards. 
D) None of the above.

Question 8

Big bath accounting is generally used to drop earnings when:

Accepted Answer

A) When the economy is poor. 
B) There is a change in management team. 
C) When operations are restructured. 
D) All of the above. 
A) When the economy is poor. 
B) There is a change in management team. 
C) When operations are restructured. 
D) All of the above.

Question 9

Which of the following earning management reasons would NOT be viewed as a positive for shareholders?

Accepted Answer

A) To meet analysts' expectations. 
B) To accurately convey private information. 
C) To increase short term profits. 
D) To avoid violating debt covenants. 
A) To meet analysts' expectations. 
B) To accurately convey private information. 
C) To increase short term profits. 
D) To avoid violating debt covenants.

Question 10

An entity can change its accounting policy:

Accepted Answer

A) Never once the decision is made. 
B) Provided it can argue that the new method provides better information for users. 
C) Only with the approval of its auditors. 
D) As often as it likes. 
A) Never once the decision is made. 
B) Provided it can argue that the new method provides better information for users. 
C) Only with the approval of its auditors. 
D) As often as it likes.

Question 11

Research into income smoothing has concluded that:

Accepted Answer

A) The findings are mixed with regards to earnings quality. 
B) Smoothed income indicates high earnings quality. 
C) Smoothed income indicates low earnings quality. 
D) There is no relationship between income smoothing and earnings quality. 
A) The findings are mixed with regards to earnings quality. 
B) Smoothed income indicates high earnings quality. 
C) Smoothed income indicates low earnings quality. 
D) There is no relationship between income smoothing and earnings quality.

Question 12

Why does income smoothing generally lead to a higher share value?

Accepted Answer

A) It is perceived as increasing the chance of insolvency. 
B) It reduces the perceived risk of the company. 
C) It leads to higher perceived income. 
D) None of the above. 
A) It is perceived as increasing the chance of insolvency. 
B) It reduces the perceived risk of the company. 
C) It leads to higher perceived income. 
D) None of the above.

Question 13

Earnings management:

Accepted Answer

A) Has a range of meanings. 
B) Is illegal. 
C) Is considered to always be harmful to shareholders. 
D) None of the above. 
A) Has a range of meanings. 
B) Is illegal. 
C) Is considered to always be harmful to shareholders. 
D) None of the above.

Question 14

Research into IPOs and earnings management have indicated:

Accepted Answer

A) The market does discover upwards earning management. 
B) Investors expect upwards earning management. 
C) Firms do not engage in upwards earnings management. 
D) None of the above. 
A) The market does discover upwards earning management. 
B) Investors expect upwards earning management. 
C) Firms do not engage in upwards earnings management. 
D) None of the above.

Question 15

Which of the following is NOT thought to reflect earnings quality?

Accepted Answer

A) Operating/non-operating mix. 
B) Trend in profit results. 
C) Total income tax expense for the period. 
D) Earnings base. 
A) Operating/non-operating mix. 
B) Trend in profit results. 
C) Total income tax expense for the period. 
D) Earnings base.

Question 16

Researchers examining share price reactions to evidence of fraudulent reporting have concluded that:

Accepted Answer

A) Markets are generally surprised by the information. 
B) Markets are highly efficient. 
C) Markets interpret the discovery as good news. 
D) Share prices are generally unaffected. 
A) Markets are generally surprised by the information. 
B) Markets are highly efficient. 
C) Markets interpret the discovery as good news. 
D) Share prices are generally unaffected.

Question 17

Which of the following would be considered fraudulent accounting?

Accepted Answer

A) Liberal credit terms and estimation of provision for doubtful debts. 
B) Recognising revenue when services are prepaid but only partially performed. 
C) Capitalising advertising costs. 
D) Restating useful life and residual value of non-current assets upwards. 
A) Liberal credit terms and estimation of provision for doubtful debts. 
B) Recognising revenue when services are prepaid but only partially performed. 
C) Capitalising advertising costs. 
D) Restating useful life and residual value of non-current assets upwards.

Question 18

Which of the following components of managerial compensation are thought to most encourage earnings management?

Accepted Answer

A) Shares or share options. 
B) Their base salary. 
C) Their cash bonuses. 
D) Various perquisites. 
A) Shares or share options. 
B) Their base salary. 
C) Their cash bonuses. 
D) Various perquisites.

Question 19

Which of the following is NOT an example of real activities management that could be used to manage earnings?

Accepted Answer

A) Accelerating sales. 
B) Reducing discretionary spending. 
C) Adjusting loan loss provisions. 
D) Delaying research and development. 
A) Accelerating sales. 
B) Reducing discretionary spending. 
C) Adjusting loan loss provisions. 
D) Delaying research and development.

Question 20

Which of the following is NOT an accrual accounting technique that could be used to manage earnings?

Accepted Answer

A) Adjusting closing inventory valuations. 
B) Under-provisioning for bad debts. 
C) Delaying asset impairments. 
D) None of the above,they could all be used to manage earnings. 
A) Adjusting closing inventory valuations. 
B) Under-provisioning for bad debts. 
C) Delaying asset impairments. 
D) None of the above,they could all be used to manage earnings.

With regards to inventory which of the following would be classed as conservative accounting?

Earnings are important because:

Which of the following is NOT likely to be interested in earnings information?

Which of the following board characteristics are likely to reduce earnings management?

Which of the following methods is NOT commonly used to manipulate earnings:

Which of the following techniques is NOT generally useful to smooth income?

Which of the following is most likely to be true?

Big bath accounting is generally used to drop earnings when:

Which of the following earning management reasons would NOT be viewed as a positive for shareholders?

An entity can change its accounting policy:

Research into income smoothing has concluded that:

Why does income smoothing generally lead to a higher share value?

Earnings management:

Research into IPOs and earnings management have indicated:

Which of the following is NOT thought to reflect earnings quality?

Researchers examining share price reactions to evidence of fraudulent reporting have concluded that:

Which of the following would be considered fraudulent accounting?

Which of the following components of managerial compensation are thought to most encourage earnings management?

Which of the following is NOT an example of real activities management that could be used to manage earnings?

Which of the following is NOT an accrual accounting technique that could be used to manage earnings?

Contemporary Issues in Accounting

The Conceptual Framework for Financial Reporting

Standard Setting

Measurement

Theories in Accounting

Products of the Financial Reporting Process

Corporate Governance

Capital Markets Research and Accounting

Fair Value Accounting

Sustainability and Environmental Accounting

International Accounting

Filters

Exam 9: Earnings Management

With regards to inventory which of the following would be classed as conservative accounting?

Earnings are important because:

Which of the following is NOT likely to be interested in earnings information?

Which of the following board characteristics are likely to reduce earnings management?

Which of the following methods is NOT commonly used to manipulate earnings:

Which of the following techniques is NOT generally useful to smooth income?

Which of the following is most likely to be true?

Big bath accounting is generally used to drop earnings when:

Which of the following earning management reasons would NOT be viewed as a positive for shareholders?

An entity can change its accounting policy:

Research into income smoothing has concluded that:

Why does income smoothing generally lead to a higher share value?

Earnings management:

Research into IPOs and earnings management have indicated:

Which of the following is NOT thought to reflect earnings quality?

Researchers examining share price reactions to evidence of fraudulent reporting have concluded that:

Which of the following would be considered fraudulent accounting?

Which of the following components of managerial compensation are thought to most encourage earnings management?

Which of the following is NOT an example of real activities management that could be used to manage earnings?

Which of the following is NOT an accrual accounting technique that could be used to manage earnings?

Contemporary Issues in Accounting

The Conceptual Framework for Financial Reporting

Standard Setting

Measurement

Theories in Accounting

Products of the Financial Reporting Process

Corporate Governance

Capital Markets Research and Accounting

Fair Value Accounting

Sustainability and Environmental Accounting

International Accounting

Filters