Question 1

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 2

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 B

Question 3

If the accounting profession were to replace the accrual basis of accounting with the cash basis, do you think that financial accounting fraud would increase or decrease? Defend your viewpoint.

Accepted Answer

I believe that if the accounting profession were to replace the accrual basis of accounting with the cash basis, financial accounting fraud would likely increase. The accrual basis of accounting records transactions when they occur, regardless of when the cash is actually received or paid. This method provides a more accurate representation of a company's financial position and performance.

On the other hand, the cash basis of accounting only records transactions when cash is actually received or paid. This method can be easily manipulated to show a more favorable financial position by delaying the recognition of expenses or accelerating the recognition of revenue.

Therefore, if the accounting profession were to switch to the cash basis, it would create more opportunities for manipulation and fraud. Companies could delay recording expenses to make their profits appear higher, or they could accelerate the recognition of revenue to make their financial position look better than it actually is.

In conclusion, the accrual basis of accounting provides a more accurate and transparent representation of a company's financial position and performance. Switching to the cash basis would likely increase the potential for financial accounting fraud.

Question 4

Which of the following is not an element of The Fraud Triangle?

Accepted Answer

A)  A person's attitude 
B)  A person's willingness to violate the Due Care Principle 
C)  The presence of pressures to achieve specified performance levels 
D)  The perceived opportunity for financial gain 
A)  A person's attitude 
B)  A person's willingness to violate the Due Care Principle 
C)  The presence of pressures to achieve specified performance levels 
D)  The perceived opportunity for financial gain

Question 5

"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 6

Which of the following scandals can best be described as a Ponzi scheme?

Accepted Answer

A)  The Madoff scandal 
B)  The Healthsouth scandal 
C)  The Krispy Kreme scandal 
D)  All of the above 
A)  The Madoff scandal 
B)  The Healthsouth scandal 
C)  The Krispy Kreme scandal 
D)  All of the above

Question 7

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 8

What is cookie jar accounting? How is it abused?

Accepted Answer

Cookie jar accounting is a term used to

Question 9

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 10

"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

Question 11

"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 12

To curb potential abuse, publicly traded companies:

Accepted Answer

A)  May not do business with related parties 
B)  May not have related parties serve on their Boards of Directors 
C)  May do business with related parties, as long as such relationships and transactions are clearly disclosed 
D)  May do business with related parties as long as such transactions occur at fair market value, as determined by the company's independent auditors 
A)  May not do business with related parties 
B)  May not have related parties serve on their Boards of Directors 
C)  May do business with related parties, as long as such relationships and transactions are clearly disclosed 
D)  May do business with related parties as long as such transactions occur at fair market value, as determined by the company's independent auditors

Question 13

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 14

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

Question 15

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 16

What lessons have been learned from the demise of Enron?

Accepted Answer

The demise of Enron taught several impor

Question 17

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 18

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

Question 19

What is big bath accounting? How is it abused?

Accepted Answer

Big bath accounting is a financial repor

Question 20

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

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

If the accounting profession were to replace the accrual basis of accounting with the cash basis, do you think that financial accounting fraud would increase or decrease? Defend your viewpoint.

Which of the following is not an element of The Fraud Triangle?

"Cookie jar accounting":

Which of the following scandals can best be described as a Ponzi scheme?

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

What is cookie jar accounting? How is it abused?

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

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

"Round trip" transactions primarily are utilized by companies:

To curb potential abuse, publicly traded companies:

Enron's use of Special Purpose Entities led to:

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

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

What lessons have been learned from the demise of Enron?

Enron used special-purpose entities to:

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:

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

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

If the accounting profession were to replace the accrual basis of accounting with the cash basis, do you think that financial accounting fraud would increase or decrease? Defend your viewpoint.

Which of the following is not an element of The Fraud Triangle?

"Cookie jar accounting":

Which of the following scandals can best be described as a Ponzi scheme?

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

What is cookie jar accounting? How is it abused?

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

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

"Round trip" transactions primarily are utilized by companies:

To curb potential abuse, publicly traded companies:

Enron's use of Special Purpose Entities led to:

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

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

What lessons have been learned from the demise of Enron?

Enron used special-purpose entities to:

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:

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

Filters