Question 1

According to the Fraud Triangle,which the following is one of the requisites for fraud to occur?

Accepted Answer

A)  The perception of an opportunity for ill-gotten financial gain 
B)  The existence of sound justification for a person to receive greater financial rewards 
C)  The existence of a clear-cut opportunity for ill-gotten financial gain 
D)  Employment in a sensitive financial capacity in which peers reap greater financial rewards than the employee contemplating fraud receives 
A)  The perception of an opportunity for ill-gotten financial gain 
B)  The existence of sound justification for a person to receive greater financial rewards 
C)  The existence of a clear-cut opportunity for ill-gotten financial gain 
D)  Employment in a sensitive financial capacity in which peers reap greater financial rewards than the employee contemplating fraud receives A

Question 2

Enron used special-purpose entities to:

Accepted Answer

A)  Keep large amounts of debt off of its balance sheet 
B)  Create the appearance of activities that fooled inspectors 
C)  Distort its reported Accounts Receivable 
D)  Avoid the use of accelerated depreciation on assets for which this method was required to be applied 
A)  Keep large amounts of debt off of its balance sheet 
B)  Create the appearance of activities that fooled inspectors 
C)  Distort its reported Accounts Receivable 
D)  Avoid the use of accelerated depreciation on assets for which this method was required to be applied A

Question 3

Some commentators have suggested that Enron would not have collapsed if it:

Accepted Answer

A)  Had enacted a Code of Conduct 
B)  Had enacted a standard Code of Conduct rather than the weak one that it in fact had 
C)  Had carefully complied with all of the provisions of the Sarbanes-Oxley Act 
D)  Had not unduly focused on short-term stock performance 
A)  Had enacted a Code of Conduct 
B)  Had enacted a standard Code of Conduct rather than the weak one that it in fact had 
C)  Had carefully complied with all of the provisions of the Sarbanes-Oxley Act 
D)  Had not unduly focused on short-term stock performance D

Question 4

"Cookie jar accounting":

Accepted Answer

A)  Always sweetens, or increases, a company's reported profits, as its name suggests 
B)  Sets aside questionable but desirable items in a jar, so to speak, and reports conservative results 
C)  Allows a firm to manipulate the trend in its earnings, making earnings less volatile 
D)  Allows a firm to boost its long-run, total reported earnings from a financial accounting perspective 
A)  Always sweetens, or increases, a company's reported profits, as its name suggests 
B)  Sets aside questionable but desirable items in a jar, so to speak, and reports conservative results 
C)  Allows a firm to manipulate the trend in its earnings, making earnings less volatile 
D)  Allows a firm to boost its long-run, total reported earnings from a financial accounting perspective

Question 5

Enron's use of Special Purpose Entities led to:

Accepted Answer

A)  Widespread, and wholly unexpected, embezzlements of funds 
B)  Widespread embezzlements of funds that could had, and should have, been readily anticipated 
C)  The accounting profession developing the concept of consolidated financial statements 
D)  Rule changes in GAAP 
A)  Widespread, and wholly unexpected, embezzlements of funds 
B)  Widespread embezzlements of funds that could had, and should have, been readily anticipated 
C)  The accounting profession developing the concept of consolidated financial statements 
D)  Rule changes in GAAP

Question 6

From the perspective of accounting,the downfall of Lehman Brothers was primarily attributable to:

Accepted Answer

A)  The company's undue focus on short-term earnings 
B)  The company's blatantly deceptive revenue recognition policy on complex financial products and services 
C)  Debt repayment transactions that lacked enduring economic substance 
D)  A subtle variation on cookie jar accounting 
A)  The company's undue focus on short-term earnings 
B)  The company's blatantly deceptive revenue recognition policy on complex financial products and services 
C)  Debt repayment transactions that lacked enduring economic substance 
D)  A subtle variation on cookie jar accounting

Question 7

The Fraud Triangle refers to:

Accepted Answer

A)  The three acts of accounting deception that led to Enron's downfall 
B)  The three alternative causes of fraud in large organizations 
C)  The three alternative causes of financial fraud in business enterprises 
D)  The three elements that collectively must be present for fraud to occur 
A)  The three acts of accounting deception that led to Enron's downfall 
B)  The three alternative causes of fraud in large organizations 
C)  The three alternative causes of financial fraud in business enterprises 
D)  The three elements that collectively must be present for fraud to occur

Question 8

"Round trip" transactions primarily are utilized by companies:

Accepted Answer

A)  To commit tax fraud 
B)  To substantially change the overall composition of their assets 
C)  To recognize accounting gains without meaningfully changing the nature of their operations 
D)  To return capital that previously was contributed by shareholders, often through the use of treasury stock repurchases 
A)  To commit tax fraud 
B)  To substantially change the overall composition of their assets 
C)  To recognize accounting gains without meaningfully changing the nature of their operations 
D)  To return capital that previously was contributed by shareholders, often through the use of treasury stock repurchases

Question 9

The LIBOR scandal was primarily caused by:

Accepted Answer

A)  Bad debt losses on bank loans that were biased downward to avoid inquiry by European banking regulators 
B)  Excessive reliance by banks on loans the bear adjustable loan interest rates 
C)  A lack of candor by certain banks 
D)  A lack of integrity by large corporate borrowers 
A)  Bad debt losses on bank loans that were biased downward to avoid inquiry by European banking regulators 
B)  Excessive reliance by banks on loans the bear adjustable loan interest rates 
C)  A lack of candor by certain banks 
D)  A lack of integrity by large corporate borrowers

Question 10

By serving on the Board of Directors of various charities,Bernie Madoff was able to:

Accepted Answer

A)  Utilize their tax-exempt status to his advantage 
B)  Invest funds in a nontaxable manner 
C)  Hide his profits through the use of nonprofit organizations that were highly unlikely to be audited by the IRS 
D)  Gain their trust 
A)  Utilize their tax-exempt status to his advantage 
B)  Invest funds in a nontaxable manner 
C)  Hide his profits through the use of nonprofit organizations that were highly unlikely to be audited by the IRS 
D)  Gain their trust

Question 11

What lessons have been learned from the demise of Enron?

Accepted Answer

The demise of Enron taught several impor

Question 12

A North Dakota telecommunication company sold "the contractual right to a 5-year supply of transmission capacity" to another telecommunication company in an all-cash transaction.The price was deliberately set above fair market value.The buyer,located in San Jose,California,in turn sold an equivalent amount of "5-year transmission capacity" to the North Dakota telecommunications company at an equally inflated price in an all-cash transaction.
a. Does this affect the North Dakota companies' net cash flow?
b. Does it affect the North Dakota company's reported assets?
c. Does it affect the North Dakota company's revenues in the year of sale?
d. Does it affect the North Dakota company's long-term profitability?
e. Why do you think that this company entered into this transaction?
f. Would you describe this transaction as a "round-trip" transaction? Why or why not?
g. How can auditors ensure that abusive transactions such as this one do not deceive the investing public?

Accepted Answer

a.No.
b.Yes,because the purchase is capi

Question 13

What is cookie jar accounting? How is it abused?

Accepted Answer

Cookie jar accounting is a term used to

Question 14

Which of the following scandals involved expenses that were improperly were capitalized as assets?

Accepted Answer

A)  World Com 
B)  Parmalat 
C)  Bernie Madoff 
D)  Enron 
A)  World Com 
B)  Parmalat 
C)  Bernie Madoff 
D)  Enron

Question 15

Your employer operates in an industry in which company sales are expected to increase by 5% next year.Your employer,however,has issued earnings guidance in which it declared that it expects its sales to increase by 13% next year.As a result,which of the following elements of the Fraud Triangle are present?

Accepted Answer

A)  Rationalization 
B)  Pressure to engage in channel stuffing 
C)  Opportunity to exceed expectations 
D)  Opportunity to garner above-market stock performance gains 
A)  Rationalization 
B)  Pressure to engage in channel stuffing 
C)  Opportunity to exceed expectations 
D)  Opportunity to garner above-market stock performance gains

Question 16

Your employer operates in an industry in which company pre-tax earnings are expected to increase by 5% next year.Your employer,however,has issued earnings guidance in which it declared that it expects its pre-tax earnings to increase by 11% next year.As a result,which of the following elements of the Fraud Triangle are present?

Accepted Answer

A)  Attitudes 
B)  Pressure to understate expenses 
C)  Opportunity to overstate revenues 
D)  All three elements are present 
A)  Attitudes 
B)  Pressure to understate expenses 
C)  Opportunity to overstate revenues 
D)  All three elements are present

Question 17

When a person's net cash flow exceeds his or her reported taxable income,the IRS:

Accepted Answer

A)  Has an automated system that identifies a taxpayer as a possible tax cheater 
B)  Presumes, upon examination, that the taxpayer is underreporting his or her income 
C)  Conclusively recognizes that the taxpayer is underreporting his or her income 
D)  Conclusively recognizes that the taxpayer has underreported both income and tax payments 
A)  Has an automated system that identifies a taxpayer as a possible tax cheater 
B)  Presumes, upon examination, that the taxpayer is underreporting his or her income 
C)  Conclusively recognizes that the taxpayer is underreporting his or her income 
D)  Conclusively recognizes that the taxpayer has underreported both income and tax payments

Question 18

What is big bath accounting? How is it abused?

Accepted Answer

Big bath accounting is a financial repor

Question 19

When a person's net cash flow exceeds his reported taxable income,the presumption that this individual has misreported his income to taxing authorities can be rebutted by showing that:

Accepted Answer

A)  The cash flow was attributable to the receipt of a nontaxable inheritance 
B)  The cash flow was attributable to loan proceeds 
C)  The cash flow was attributable to the receipt of nontaxable gifts 
D)  All of the above 
A)  The cash flow was attributable to the receipt of a nontaxable inheritance 
B)  The cash flow was attributable to loan proceeds 
C)  The cash flow was attributable to the receipt of nontaxable gifts 
D)  All of the above

Question 20

"Big bath accounting" describes a company's actions when it:

Accepted Answer

A)  Manages its earnings in a downward direction in the year of a major acquisition or restructuring 
B)  Optimizes the amount of Goodwill recognized upon paying a premium to acquire another company 
C)  Manages its earnings by maintaining such a large number of discretionary items that it could "fill a bathtub," so to speak 
D)  "Cleans its books," so to speak, of improperly recorded items in anticipation of a rigorous audit examination 
A)  Manages its earnings in a downward direction in the year of a major acquisition or restructuring 
B)  Optimizes the amount of Goodwill recognized upon paying a premium to acquire another company 
C)  Manages its earnings by maintaining such a large number of discretionary items that it could "fill a bathtub," so to speak 
D)  "Cleans its books," so to speak, of improperly recorded items in anticipation of a rigorous audit examination

According to the Fraud Triangle,which the following is one of the requisites for fraud to occur?

Enron used special-purpose entities to:

Some commentators have suggested that Enron would not have collapsed if it:

"Cookie jar accounting":

Enron's use of Special Purpose Entities led to:

From the perspective of accounting,the downfall of Lehman Brothers was primarily attributable to:

The Fraud Triangle refers to:

"Round trip" transactions primarily are utilized by companies:

The LIBOR scandal was primarily caused by:

By serving on the Board of Directors of various charities,Bernie Madoff was able to:

What lessons have been learned from the demise of Enron?

What is cookie jar accounting? How is it abused?

Which of the following scandals involved expenses that were improperly were capitalized as assets?

When a person's net cash flow exceeds his or her reported taxable income,the IRS:

What is big bath accounting? How is it abused?

When a person's net cash flow exceeds his reported taxable income,the presumption that this individual has misreported his income to taxing authorities can be rebutted by showing that:

"Big bath accounting" describes a company's actions when it:

Introduction to Ethics

Ethical Principles and Reasoning

The Core Philosophies

Virtue,justice,and Social Responsibility

Why We Cheat

Greed,corruption,and Collusion

Discreditable Acts: Discrimination,deceit,and Disclosure

Confidentiality

Independence and Moral Seduction

Conflicts of Interest

Duties As a Whistleblower

Duties of Public-Company Auditors: the Sarbanesoxley Act

Duties of Tax Professionals

Duties of Fiduciaries: Financial Planners,trustees,and Executors

Duties in the Accounting Workplace Online Only

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Exam 7: Fraud and Earnings Management

According to the Fraud Triangle,which the following is one of the requisites for fraud to occur?

Enron used special-purpose entities to:

Some commentators have suggested that Enron would not have collapsed if it:

"Cookie jar accounting":

Enron's use of Special Purpose Entities led to:

From the perspective of accounting,the downfall of Lehman Brothers was primarily attributable to:

The Fraud Triangle refers to:

"Round trip" transactions primarily are utilized by companies:

The LIBOR scandal was primarily caused by:

By serving on the Board of Directors of various charities,Bernie Madoff was able to:

What lessons have been learned from the demise of Enron?

What is cookie jar accounting? How is it abused?

Which of the following scandals involved expenses that were improperly were capitalized as assets?

When a person's net cash flow exceeds his or her reported taxable income,the IRS:

What is big bath accounting? How is it abused?

When a person's net cash flow exceeds his reported taxable income,the presumption that this individual has misreported his income to taxing authorities can be rebutted by showing that:

"Big bath accounting" describes a company's actions when it:

Introduction to Ethics

Ethical Principles and Reasoning

The Core Philosophies

Virtue,justice,and Social Responsibility

Why We Cheat

Greed,corruption,and Collusion

Discreditable Acts: Discrimination,deceit,and Disclosure

Confidentiality

Independence and Moral Seduction

Conflicts of Interest

Duties As a Whistleblower

Duties of Public-Company Auditors: the Sarbanesoxley Act

Duties of Tax Professionals

Duties of Fiduciaries: Financial Planners,trustees,and Executors

Duties in the Accounting Workplace Online Only

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