Question 1

Which of the following is NOT a motivation to manage earnings?

Accepted Answer

A)  Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options 
B)  Companies try to accelerate as much revenue as possible into early periods regardless of the effects on later periods 
C)  To smooth net income over time 
D)  To maximize compensation including bonuses 
A)  Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options 
B)  Companies try to accelerate as much revenue as possible into early periods regardless of the effects on later periods 
C)  To smooth net income over time 
D)  To maximize compensation including bonuses

Question 2

The Solway case looks at the accounting issue of:

Accepted Answer

A)  Recording of accruals to manage earnings 
B)  Recording of asset impairments to manage earnings 
C)  Premature revenue recognition 
D)  Setting up SPEs 
A)  Recording of accruals to manage earnings 
B)  Recording of asset impairments to manage earnings 
C)  Premature revenue recognition 
D)  Setting up SPEs

Question 3

Evaluate the ethics at Enron and by those in top management with respect to its operations and accounting and financial reporting techniques.

Accepted Answer

The ethics at Enron and by those in top

Question 4

In the Sweat Construction case, the company tried to manipulate earnings through the use of which accounting technique

Accepted Answer

A)  Cookie jar reserves 
B)  Lease capitalization 
C)  Percentage of completion method 
D)  The Big Bath accounting 
A)  Cookie jar reserves 
B)  Lease capitalization 
C)  Percentage of completion method 
D)  The Big Bath accounting

Question 5

Which of the following author(s) link earnings management to choices made in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent practices that are clearly intended to deceive others?

Accepted Answer

A)  Dechow and Skinner 
B)  Healy and Wahlen 
C)  Schipper 
D)  Thomas 
E)  McKee 
A)  Dechow and Skinner 
B)  Healy and Wahlen 
C)  Schipper 
D)  Thomas 
E)  McKee

Question 6

There are several aspects of Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true?

Accepted Answer

A)  SOX permitted the provision of internal audit service for audit clients 
B)  Off-balance-sheet financing activities were prohibited for all companies 
C)  Related-party transactions require disclosure in the notes 
D)  All of these 
A)  SOX permitted the provision of internal audit service for audit clients 
B)  Off-balance-sheet financing activities were prohibited for all companies 
C)  Related-party transactions require disclosure in the notes 
D)  All of these

Question 7

Select either the Xerox or Lucent frauds described in the chapter and explain the accounting techniques used to commit fraud.

Accepted Answer

The Xerox fraud involved the manipulatio

Question 8

Inherent risk refers to:

Accepted Answer

A)  The possibility that a material misstatement will occur within the reporting company's accounting information system 
B)  The possibility that a material misstatement that has occurred will not be detected on a timely basis by the company's control system 
C)  The possibility that a material misstatement that has occurred will not be caught be the independent auditor's testing 
D)  The possibility that a material misstatement will occur in the financial statements 
A)  The possibility that a material misstatement will occur within the reporting company's accounting information system 
B)  The possibility that a material misstatement that has occurred will not be detected on a timely basis by the company's control system 
C)  The possibility that a material misstatement that has occurred will not be caught be the independent auditor's testing 
D)  The possibility that a material misstatement will occur in the financial statements

Question 9

Which of the following is NOT an earnings management technique?

Accepted Answer

A)  Failing to write down or write off impaired assets 
B)  Releasing questionable reserves into income 
C)  Failing to record expenses and related liabilities when future obligations remain 
D)  Creating an allowance for uncollectible accounts and adjusting it at year end 
A)  Failing to write down or write off impaired assets 
B)  Releasing questionable reserves into income 
C)  Failing to record expenses and related liabilities when future obligations remain 
D)  Creating an allowance for uncollectible accounts and adjusting it at year end

Question 10

If a company is managing its earnings, which of the ethical theories are they most likely following?

Accepted Answer

A)  Rights 
B)  Fairness 
C)  Egoism 
D)  Virtue 
A)  Rights 
B)  Fairness 
C)  Egoism 
D)  Virtue

Question 11

SAS No. 107 identifies the following aspects of disclosure amounts deemed to be material except for:

Accepted Answer

A)  Disclosing an item in one year but not in the next year 
B)  Qualitative aspects of the disclosure 
C)  Quantitative significance of the disclosure 
D)  Professional judgment 
A)  Disclosing an item in one year but not in the next year 
B)  Qualitative aspects of the disclosure 
C)  Quantitative significance of the disclosure 
D)  Professional judgment

Question 12

Which of the following is NOT addressed in the Waste Management's case?

Accepted Answer

A)  The misstatements represented 10% of pre-tax income, which was not considered material. 
B)  The company employed aggressive accounting practices to enhance its earnings. 
C)  The company used the gain to offset unrelated operating expenses which was not in conformity with GAAP. 
D)  The company's auditor, Arthur Andersen, had engaged in improper professional conduct. 
A)  The misstatements represented 10% of pre-tax income, which was not considered material. 
B)  The company employed aggressive accounting practices to enhance its earnings. 
C)  The company used the gain to offset unrelated operating expenses which was not in conformity with GAAP. 
D)  The company's auditor, Arthur Andersen, had engaged in improper professional conduct.

Question 13

Which of the following is NOT considered "earnings management"?

Accepted Answer

A)  "Earnings management" is done to project smoother earnings from year to year. 
B)  Management emphasizes achieving long-term results to meet financial goals. 
C)  A Management uses "cookie-jar reserves each year." 
D)  The executives manipulate the earnings in order to match their predetermined target. 
A)  "Earnings management" is done to project smoother earnings from year to year. 
B)  Management emphasizes achieving long-term results to meet financial goals. 
C)  A Management uses "cookie-jar reserves each year." 
D)  The executives manipulate the earnings in order to match their predetermined target.

Question 14

Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act including:

Accepted Answer

A)  An internal control deficiency caused by accounting manipulations 
B)  A large variance in an accounting estimate compared with the actual determined amount 
C)  A misstatement that changes a loss into income or vice versa 
D)  All were identified 
A)  An internal control deficiency caused by accounting manipulations 
B)  A large variance in an accounting estimate compared with the actual determined amount 
C)  A misstatement that changes a loss into income or vice versa 
D)  All were identified

Question 15

Which of the following author(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings."?

Accepted Answer

A)  Dechow and Skinner 
B)  Healy and Wahlen 
C)  Schipper 
D)  Thomas 
E)  McKee 
A)  Dechow and Skinner 
B)  Healy and Wahlen 
C)  Schipper 
D)  Thomas 
E)  McKee

Question 16

You work for a company that always pushes the envelope with respect to reporting revenues and expenses. You often disagree with the company because its approach to reporting these amounts cannot be justified from a GAAP perspective. You are upset and are considering whether this is a company that has a culture you want to be part of. Which of the following best characterizes the ethical issues of concern?

Accepted Answer

A)  Rights Theory 
B)  Moral blindness 
C)  Ethical Dissonance 
D)  Materiality 
A)  Rights Theory 
B)  Moral blindness 
C)  Ethical Dissonance 
D)  Materiality

Question 17

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."?

Accepted Answer

A)  Dechow and Skinner 
B)  Healy and Wahlen 
C)  Schipper 
D)  Thomas 
E)  McKee 
A)  Dechow and Skinner 
B)  Healy and Wahlen 
C)  Schipper 
D)  Thomas 
E)  McKee

Question 18

The swap transactions used in the Solutions Network case to manage earnings can best be described as:

Accepted Answer

A)  Going to a swap meet and capitalizing purchases instead of expensing them immediately against swap revenue 
B)  Recording revenue on software systems transactions in an earlier period than when obligated to buy the same in a later period 
C)  Using a cookie jar reserve to delay the recording of revenue into a later period 
D)  Recording as operating revenue on onetime gains from the sale of underperforming assets 
A)  Going to a swap meet and capitalizing purchases instead of expensing them immediately against swap revenue 
B)  Recording revenue on software systems transactions in an earlier period than when obligated to buy the same in a later period 
C)  Using a cookie jar reserve to delay the recording of revenue into a later period 
D)  Recording as operating revenue on onetime gains from the sale of underperforming assets

Question 19

Congress passed the "Sarbanes-Oxley Act" on July 30, 2002. Which of the following is NOT true?

Accepted Answer

A)  All companies are required to include in their annual reports a report of management on the company's internal control over financial reporting. 
B)  New audit standards include a prohibition against independent auditors providing many non-audit services and mandatory audit engagement partner rotation. 
C)  Only U.S. companies are subject to the disclosure requirements of the Act. 
D)  All public companies must change auditors every ten years. 
A)  All companies are required to include in their annual reports a report of management on the company's internal control over financial reporting. 
B)  New audit standards include a prohibition against independent auditors providing many non-audit services and mandatory audit engagement partner rotation. 
C)  Only U.S. companies are subject to the disclosure requirements of the Act. 
D)  All public companies must change auditors every ten years.

Question 20

The SEC requires stealth restatements to be

Accepted Answer

A)  Disclosed only in periodic reports. 
B)  Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A. 
C)  Increased to more 50 % of restatements. 
D)  Disclosed in ten business days after determination of need for restatement. 
A)  Disclosed only in periodic reports. 
B)  Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A. 
C)  Increased to more 50 % of restatements. 
D)  Disclosed in ten business days after determination of need for restatement.

Which of the following is NOT a motivation to manage earnings?

The Solway case looks at the accounting issue of:

Evaluate the ethics at Enron and by those in top management with respect to its operations and accounting and financial reporting techniques.

In the Sweat Construction case, the company tried to manipulate earnings through the use of which accounting technique

Which of the following author(s) link earnings management to choices made in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent practices that are clearly intended to deceive others?

There are several aspects of Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true?

Select either the Xerox or Lucent frauds described in the chapter and explain the accounting techniques used to commit fraud.

Inherent risk refers to:

Which of the following is NOT an earnings management technique?

If a company is managing its earnings, which of the ethical theories are they most likely following?

SAS No. 107 identifies the following aspects of disclosure amounts deemed to be material except for:

Which of the following is NOT addressed in the Waste Management's case?

Which of the following is NOT considered "earnings management"?

Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act including:

Which of the following author(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings."?

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."?

The swap transactions used in the Solutions Network case to manage earnings can best be described as:

Congress passed the "Sarbanes-Oxley Act" on July 30, 2002. Which of the following is NOT true?

The SEC requires stealth restatements to be

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

Exam 7: Earnings Management and the Quality of Financial Reporting

Which of the following is NOT a motivation to manage earnings?

The Solway case looks at the accounting issue of:

Evaluate the ethics at Enron and by those in top management with respect to its operations and accounting and financial reporting techniques.

In the Sweat Construction case, the company tried to manipulate earnings through the use of which accounting technique

Which of the following author(s) link earnings management to choices made in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent practices that are clearly intended to deceive others?

There are several aspects of Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true?

Select either the Xerox or Lucent frauds described in the chapter and explain the accounting techniques used to commit fraud.

Inherent risk refers to:

Which of the following is NOT an earnings management technique?

If a company is managing its earnings, which of the ethical theories are they most likely following?

SAS No. 107 identifies the following aspects of disclosure amounts deemed to be material except for:

Which of the following is NOT addressed in the Waste Management's case?

Which of the following is NOT considered "earnings management"?

Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act including:

Which of the following author(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings."?

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."?

The swap transactions used in the Solutions Network case to manage earnings can best be described as:

Congress passed the "Sarbanes-Oxley Act" on July 30, 2002. Which of the following is NOT true?

The SEC requires stealth restatements to be

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