Question 1

All of the following are examples of "Boosting Income with One-Time Gains" except for:

Accepted Answer

A)  Recording sales that lack economic substance 
B)  Boosting profits by selling undervalued assets 
C)  Including investment income or gains as part of revenue 
D)  Including investment income or gains as a reduction in operating expenses 
A)  Recording sales that lack economic substance 
B)  Boosting profits by selling undervalued assets 
C)  Including investment income or gains as part of revenue 
D)  Including investment income or gains as a reduction in operating expenses A

Question 2

The North Face case deals with materiality and how auditors employ that metric in an audit. The following are all true except:

Accepted Answer

A)  North Face accounted for barter transactions with full normal margin recognized. 
B)  Crawford devised the 1997 barter transaction so that it was just beneath material threshold. 
C)  Crawford followed the GAAP methods that Deloitte suggested. 
D)  Deloitte proposed an adjusting entry for the 1997 barter transaction, but "passed" it as immaterial. 
A)  North Face accounted for barter transactions with full normal margin recognized. 
B)  Crawford devised the 1997 barter transaction so that it was just beneath material threshold. 
C)  Crawford followed the GAAP methods that Deloitte suggested. 
D)  Deloitte proposed an adjusting entry for the 1997 barter transaction, but "passed" it as immaterial. C

Question 3

Which of the following partnership that Enron created eventually lead to its demise?

Accepted Answer

A)  JEDI 
B)  Cactus 
C)  Chewco 
D)  Ironman 
A)  JEDI 
B)  Cactus 
C)  Chewco 
D)  Ironman C

Question 4

Which of the following was not a technique used by Enron to manage earnings?

Accepted Answer

A)  Used reserves to increase earnings when reported amounts were too low. 
B)  Deliberately over stated the allowance for uncollectibles and adjusted it downward in future years 
C)  Used mark-to-market estimates to inflate earnings in violation of GAAP 
D)  Selected which operating assets to "sell" to the SPEs, affecting the gain on transfer and earnings effect. 
A)  Used reserves to increase earnings when reported amounts were too low. 
B)  Deliberately over stated the allowance for uncollectibles and adjusted it downward in future years 
C)  Used mark-to-market estimates to inflate earnings in violation of GAAP 
D)  Selected which operating assets to "sell" to the SPEs, affecting the gain on transfer and earnings effect.

Question 5

Explain each of the seven financial shenanigans described by Schilit. Be sure to give an example of each one.

Accepted Answer

1. Recording Revenue Prematurely: This o

Question 6

The accounting issue in the Cubbies Cable case with respect to cable installations costs is closest to the accounting issue in which case?

Accepted Answer

A)  Enron 
B)  Gemstar TV Guide 
C)  Xerox 
D)  WorldCom 
A)  Enron 
B)  Gemstar TV Guide 
C)  Xerox 
D)  WorldCom

Question 7

Which of the following was not true according to the Enron case?

Accepted Answer

A)  Fastow developed the concept of buying up oil and gas companies to establish SPEs 
B)  Fastow worked to structure ventures that met the conditions under GAAP to keep the partnership activities off Enron's books and on the separate books of the partnership 
C)  Fastow created SPEs that borrowed money from banks and transferred it to Enron in a sale of an operating asset no longer need by Enron 
D)  The SPE created by Fastow enabled Enron to keep debt off its books while benefiting from transfer and use of the cash borrowed by the SPE 
A)  Fastow developed the concept of buying up oil and gas companies to establish SPEs 
B)  Fastow worked to structure ventures that met the conditions under GAAP to keep the partnership activities off Enron's books and on the separate books of the partnership 
C)  Fastow created SPEs that borrowed money from banks and transferred it to Enron in a sale of an operating asset no longer need by Enron 
D)  The SPE created by Fastow enabled Enron to keep debt off its books while benefiting from transfer and use of the cash borrowed by the SPE

Question 8

The basic ethical principle violated by Andy Fastow in his role as Enron's CFO and involvement with SPEs was:

Accepted Answer

A)  He lied to top management about what he was doing for the SPEs 
B)  He failed to exercise due care in setting up SPEs 
C)  He had a conflict of interests in his dual roles 
D)  All of these 
A)  He lied to top management about what he was doing for the SPEs 
B)  He failed to exercise due care in setting up SPEs 
C)  He had a conflict of interests in his dual roles 
D)  All of these

Question 9

The following is a definition of earnings management:
"Earnings management is recognized as attempts by management to influence or manipulate reported earnings by using specific accounting methods (or changing methods), recognizing one-time non-recurring items, deferring or accelerating expense or revenue transactions, or using other methods designed to influence short-term earnings." Explain what is meant by this statement in the context of the discussion in the chapter.
[This statement comes from an excellent article on the issue titled "Earnings Management and its Implications." You may want to discuss parts of the article with your students. The article can be found at: http://www.nysscpa.org/cpajournal/2007/807/essentials/p64.htm]

Accepted Answer

In the context of the discussion in the

Question 10

In surveys of managers, which technique to manage earnings was considered most acceptable?

Accepted Answer

A)  Changing inventory valuation in order to influence earnings 
B)  Accounting manipulation 
C)  Manipulating operating decisions 
D)  Establishing cookie jar reserves 
A)  Changing inventory valuation in order to influence earnings 
B)  Accounting manipulation 
C)  Manipulating operating decisions 
D)  Establishing cookie jar reserves

Question 11

"Earnings management either ignores or does not consider the rights of the investors and creditors to receive accurate, reliable and transparent financial statements." This statement is from:

Accepted Answer

A)  A virtue perspective 
B)  A utilitarian perspective 
C)  A rights perspective 
D)  A materiality perspective 
A)  A virtue perspective 
B)  A utilitarian perspective 
C)  A rights perspective 
D)  A materiality perspective

Question 12

What is the culture at Enron that discussed in the case?

Accepted Answer

A)  Employees worked later and later. 
B)  Employees were evaluated in groups; the goal was to remove the bottom 20% of each group every year. 
C)  Enron had a cutthroat system and encouraged a "yes" culture. 
D)  All of these 
A)  Employees worked later and later. 
B)  Employees were evaluated in groups; the goal was to remove the bottom 20% of each group every year. 
C)  Enron had a cutthroat system and encouraged a "yes" culture. 
D)  All of these

Question 13

Accruals are potentially troublesome because:

Accepted Answer

A)  They can lead to giving an unmodified audit opinion when it should have been modified 
B)  They provide an opportunity to manage earnings through aggressive or more conservative estimations 
C)  They always lead to fraud in financial statements 
D)  They provide an opportunity to shift debt off the books by setting up an SPE 
A)  They can lead to giving an unmodified audit opinion when it should have been modified 
B)  They provide an opportunity to manage earnings through aggressive or more conservative estimations 
C)  They always lead to fraud in financial statements 
D)  They provide an opportunity to shift debt off the books by setting up an SPE

Question 14

Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation but Steve does not. What statement might Steve make to best support his point of view?

Accepted Answer

A)  It depends on whether the misstatements were made deliberately 
B)  It depends on whether a user relied on the financial statements 
C)  It depends on whether the statements lead to a modified or unmodified opinion 
D)  All are valid statements for Steve to support his point of view 
A)  It depends on whether the misstatements were made deliberately 
B)  It depends on whether a user relied on the financial statements 
C)  It depends on whether the statements lead to a modified or unmodified opinion 
D)  All are valid statements for Steve to support his point of view

Question 15

The best definition of a financial restatement is:

Accepted Answer

A)  A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported 
B)  A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period 
C)  An adjustment of financial information due to an error correction 
D)  All are part of the definition 
A)  A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported 
B)  A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period 
C)  An adjustment of financial information due to an error correction 
D)  All are part of the definition

Question 16

The main accounting issues in the Nortel Networks case were:

Accepted Answer

A)  Premature revenue recognition and hidden cash reserves 
B)  Capitalization of operating expenses and hidden cash reserves 
C)  Premature revenue recognition and off-balance-sheet entities 
D)  Capitalization of operating expenses and off-balance-sheet entities 
A)  Premature revenue recognition and hidden cash reserves 
B)  Capitalization of operating expenses and hidden cash reserves 
C)  Premature revenue recognition and off-balance-sheet entities 
D)  Capitalization of operating expenses and off-balance-sheet entities

Question 17

Explain when earnings management may be an ethical practice.

Accepted Answer

Earnings management may be considered an

Question 18

According to AU 320, the evaluation of whether a misstatement could influence economic decisions of users

Accepted Answer

A)  Is essential to determining whether to render an unmodified opinion 
B)  Is essential to determining whether the financial statements contain fraud 
C)  Is essential to determining whether such a misstatement is material 
D)  Is essential to determining whether there is a failed audit 
A)  Is essential to determining whether to render an unmodified opinion 
B)  Is essential to determining whether the financial statements contain fraud 
C)  Is essential to determining whether such a misstatement is material 
D)  Is essential to determining whether there is a failed audit

Question 19

All of the following are examples of "Recording revenue too soon or of questionable quality" except for:

Accepted Answer

A)  Recording sales that lack economic substance. 
B)  Recording revenue when future services remain to be provided. 
C)  Recording revenue before shipment or before the customer's unconditional acceptance. 
D)  Recording revenue even though the customer is not obligated to pay. 
A)  Recording sales that lack economic substance. 
B)  Recording revenue when future services remain to be provided. 
C)  Recording revenue before shipment or before the customer's unconditional acceptance. 
D)  Recording revenue even though the customer is not obligated to pay.

Question 20

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

All of the following are examples of "Boosting Income with One-Time Gains" except for:

The North Face case deals with materiality and how auditors employ that metric in an audit. The following are all true except:

Which of the following partnership that Enron created eventually lead to its demise?

Which of the following was not a technique used by Enron to manage earnings?

Explain each of the seven financial shenanigans described by Schilit. Be sure to give an example of each one.

The accounting issue in the Cubbies Cable case with respect to cable installations costs is closest to the accounting issue in which case?

Which of the following was not true according to the Enron case?

The basic ethical principle violated by Andy Fastow in his role as Enron's CFO and involvement with SPEs was:

In surveys of managers, which technique to manage earnings was considered most acceptable?

"Earnings management either ignores or does not consider the rights of the investors and creditors to receive accurate, reliable and transparent financial statements." This statement is from:

What is the culture at Enron that discussed in the case?

Accruals are potentially troublesome because:

Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation but Steve does not. What statement might Steve make to best support his point of view?

The best definition of a financial restatement is:

The main accounting issues in the Nortel Networks case were:

Explain when earnings management may be an ethical practice.

According to AU 320, the evaluation of whether a misstatement could influence economic decisions of users

All of the following are examples of "Recording revenue too soon or of questionable quality" except for:

The accounting shenanigan used in the Dell Computer case can best be described as:

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Aicpa Code of Professional Conduct

Fraud in Financial Statements and Auditor Responsibilities

Legal, Regulatory, and Professional Obligations of Auditors

International Financial Reporting: Ethics and Corporate Governance Considerations

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Exam 7: Earnings Management and the Quality of Financial Reporting

All of the following are examples of "Boosting Income with One-Time Gains" except for:

The North Face case deals with materiality and how auditors employ that metric in an audit. The following are all true except:

Which of the following partnership that Enron created eventually lead to its demise?

Which of the following was not a technique used by Enron to manage earnings?

Explain each of the seven financial shenanigans described by Schilit. Be sure to give an example of each one.

The accounting issue in the Cubbies Cable case with respect to cable installations costs is closest to the accounting issue in which case?

Which of the following was not true according to the Enron case?

The basic ethical principle violated by Andy Fastow in his role as Enron's CFO and involvement with SPEs was:

In surveys of managers, which technique to manage earnings was considered most acceptable?

"Earnings management either ignores or does not consider the rights of the investors and creditors to receive accurate, reliable and transparent financial statements." This statement is from:

What is the culture at Enron that discussed in the case?

Accruals are potentially troublesome because:

Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation but Steve does not. What statement might Steve make to best support his point of view?

The best definition of a financial restatement is:

The main accounting issues in the Nortel Networks case were:

Explain when earnings management may be an ethical practice.

According to AU 320, the evaluation of whether a misstatement could influence economic decisions of users

All of the following are examples of "Recording revenue too soon or of questionable quality" except for:

The accounting shenanigan used in the Dell Computer case can best be described as:

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Aicpa Code of Professional Conduct

Fraud in Financial Statements and Auditor Responsibilities

Legal, Regulatory, and Professional Obligations of Auditors

International Financial Reporting: Ethics and Corporate Governance Considerations

Filters