Question 1

Which technique was used by both WorldCom and Waste Management to manage earnings?

Accepted Answer

A)  Manipulating asset net valuation amounts to minimize operating expenses for a period 
B)  Accelerating the recording of revenue into an earlier period 
C)  Delaying needed repairs to a later period 
D)  All of these were used 
A)  Manipulating asset net valuation amounts to minimize operating expenses for a period 
B)  Accelerating the recording of revenue into an earlier period 
C)  Delaying needed repairs to a later period 
D)  All of these were used

Question 2

The Diamond Foods case addresses each of the following issues except for:

Accepted Answer

A)  Crop payable recorded in the wrong year 
B)  Increasing revenues but stagnating cash flows 
C)  Depreciation of almond trees 
D)  Clawbacks of stock and cash 
A)  Crop payable recorded in the wrong year 
B)  Increasing revenues but stagnating cash flows 
C)  Depreciation of almond trees 
D)  Clawbacks of stock and cash

Question 3

The main difference between a discretionary and nondiscretionary accrual is:

Accepted Answer

A)  Discretionary accruals are items that management has full control over 
B)  Discretionary accruals are based on changes in the fundamental performance of the firm 
C)  Discretionary accruals arise from transactions considered normal for the firm 
D)  Discretionary accruals always lead to an increase in earnings 
A)  Discretionary accruals are items that management has full control over 
B)  Discretionary accruals are based on changes in the fundamental performance of the firm 
C)  Discretionary accruals arise from transactions considered normal for the firm 
D)  Discretionary accruals always lead to an increase in earnings

Question 4

Which of the following is NOT a qualitative factor when assessing materiality?

Accepted Answer

A)  A misstatement that changes a loss into income or vice versa 
B)  The existence of statutory or regulator reporting requirements that affect materiality thresholds 
C)  The potential effect of the misstatement on trends, especially trends in profitability 
D)  The use of simplistic numerical thresholds and rules of thumb 
A)  A misstatement that changes a loss into income or vice versa 
B)  The existence of statutory or regulator reporting requirements that affect materiality thresholds 
C)  The potential effect of the misstatement on trends, especially trends in profitability 
D)  The use of simplistic numerical thresholds and rules of thumb

Question 5

Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."?

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

Discuss all the factors an auditor should consider in making a materiality judgment.

Accepted Answer

The answer of Discuss all the factors an auditor should...

Question 7

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?

Accepted Answer

A)  Shifting Current Revenue to a later period 
B)  Boosting income with one-time gains 
C)  Recording revenue too soon or of questionable quality 
D)  Shifting current expenses to a later or earlier period 
A)  Shifting Current Revenue to a later period 
B)  Boosting income with one-time gains 
C)  Recording revenue too soon or of questionable quality 
D)  Shifting current expenses to a later or earlier period

Question 8

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox's case?

Accepted Answer

A)  Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price. 
B)  Xerox top management overrode the internal control to manipulate earnings. 
C)  Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately $3 billion in equipment revenues. 
D)  Xerox recognized a greater amount of revenue on leases in early years than warranted and didn't break out revenues that should have been deferred and recognized in future years. 
A)  Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price. 
B)  Xerox top management overrode the internal control to manipulate earnings. 
C)  Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately $3 billion in equipment revenues. 
D)  Xerox recognized a greater amount of revenue on leases in early years than warranted and didn't break out revenues that should have been deferred and recognized in future years.

Question 9

The quality of financial reporting is an important issue in the chapter. Explain how and why the quality of financial reporting is an underlying issue in the frauds discussed in the chapter.

Accepted Answer

The quality of financial reporting is an

Question 10

Use the fraud triangle to evaluate the actions by those in top management at Enron as the accounting fraud unfolded.

Accepted Answer

The fraud triangle is a framework used t

Question 11

Which of the following was not an accounting issue in the Sunbeam case?

Accepted Answer

A)  Cookie jar reserves 
B)  Channel stuffing 
C)  Bill and hold sales 
D)  Swap transactions 
A)  Cookie jar reserves 
B)  Channel stuffing 
C)  Bill and hold sales 
D)  Swap transactions

Question 12

The best way to characterize the role of Sherron Watkins in the downfall of Enron is:

Accepted Answer

A)  She directed the internal auditors to examine numerous transactions that led to the discovery of the fraud 
B)  She gave in to the pressure of Andy Fastow to go along with materially misstated financial statements 
C)  She was sent to jail even though she cooperated with the government in its case against Enron 
D)  She tried to alert Ken Lay about the accounting scandal at Enron 
A)  She directed the internal auditors to examine numerous transactions that led to the discovery of the fraud 
B)  She gave in to the pressure of Andy Fastow to go along with materially misstated financial statements 
C)  She was sent to jail even though she cooperated with the government in its case against Enron 
D)  She tried to alert Ken Lay about the accounting scandal at Enron

Question 13

Who said "the ethics issue might possibly be mitigated by clearly disclosing aggressive accounting assumptions in the financial statement disclosures?"

Accepted Answer

A)  Hopwood et al 
B)  Thomas 
C)  Arthur Levitt 
D)  Belverd Needles 
E)  McKee 
A)  Hopwood et al 
B)  Thomas 
C)  Arthur Levitt 
D)  Belverd Needles 
E)  McKee

Question 14

Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis?

Accepted Answer

A)  Egoism 
B)  Act utilitarianism 
C)  Rule utilitarianism 
D)  Virtue 
A)  Egoism 
B)  Act utilitarianism 
C)  Rule utilitarianism 
D)  Virtue

Question 15

The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that:

Accepted Answer

A)  His actions were protected by attorney-client privilege 
B)  While some of his actions may have turned out to be wrong, there never was an intent to defraud 
C)  While some of his actions may have turned out to be wrong, he did the best that he could to save the company for certain bankruptcy 
D)  He adhere to the business judgment rule and met his fiduciary obligations
Essay Questions 
A)  His actions were protected by attorney-client privilege 
B)  While some of his actions may have turned out to be wrong, there never was an intent to defraud 
C)  While some of his actions may have turned out to be wrong, he did the best that he could to save the company for certain bankruptcy 
D)  He adhere to the business judgment rule and met his fiduciary obligations
Essay Questions

Question 16

Zynga makes free-to-play games and gets revenue from the sale of virtual goods for things like extending play sessions, personalizing game environments, accelerating game progress and sending gifts to friends. The company experienced deep declines in its user base during 2011-2013. At one point, plaintiffs in a lawsuit charged that Zynga executives falsely pumped up revenue and prospects so that insiders and underwriters could dump $593 million in personally-held stock.
The lawsuit alleges that the company changed its accounting methods shortly before the initial public offering to inflate short term earnings while executives hid emerging problems. Assuming the charges are true, do you believe Zynga management engaged in earnings management? How do you evaluate the ethics of its actions?

Accepted Answer

It appears so. A purposeful attempt to a

Question 17

Each of the following techniques was used by Gemstar TV Guide International in its accounting fraud except for:

Accepted Answer

A)  Created cookie jar reserves of advertising revenue to smooth net income 
B)  Engaged in round trip transactions whereby Gemstar paid money to a third party to advertise its services and capitalized that cost while the third party used Gemstar's funds to buy advertising from Gemstar, and the company recorded 100% of that amount as revenue while capitalizing the cost of its advertising payments 
C)  Used channel stuffing to accelerate the recording of revenue into earlier periods 
D)  Inflated advertising revenue from nonmonetary and barter transactions 
A)  Created cookie jar reserves of advertising revenue to smooth net income 
B)  Engaged in round trip transactions whereby Gemstar paid money to a third party to advertise its services and capitalized that cost while the third party used Gemstar's funds to buy advertising from Gemstar, and the company recorded 100% of that amount as revenue while capitalizing the cost of its advertising payments 
C)  Used channel stuffing to accelerate the recording of revenue into earlier periods 
D)  Inflated advertising revenue from nonmonetary and barter transactions

Question 18

Steve is quickly moving up in the accounting department of RAC Inc. It is year-end; he has just received news that the estimates of the estimated useful life and savage values were wrong and must be changed. Of course, that changes the depreciation expense and accumulated depreciation. Steve calls his wife to explain why he will be late again. Now is he is pondering a comment his wife made. She said "I'm no accountant; but after four years, you would think that the company could get it right how its estimates affect expenses and the relevant accounts." How might Steve interpret his wife's statement from an ethical perspective in the context of the facts?

Accepted Answer

The Company is probably managing earning

Question 19

The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for:

Accepted Answer

A)  Bright line rules are useful in making materiality judgments 
B)  Bright line rules are not really useful in making materiality judgments 
C)  The disclosure provided on restatements is not adequate 
D)  One of the major costs of restatements is the amount of time between the restatement announcement and the final resolution of the restatement 
A)  Bright line rules are useful in making materiality judgments 
B)  Bright line rules are not really useful in making materiality judgments 
C)  The disclosure provided on restatements is not adequate 
D)  One of the major costs of restatements is the amount of time between the restatement announcement and the final resolution of the restatement

Question 20

What was the original motivation by FASB on SPEs?

Accepted Answer

A)  To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books 
B)  To keep the large amount of debt off the books 
C)  To sell non-producing assets to the SPE 
D)  To select which assets to sell to the SPEs affecting the gain 
A)  To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books 
B)  To keep the large amount of debt off the books 
C)  To sell non-producing assets to the SPE 
D)  To select which assets to sell to the SPEs affecting the gain

Which technique was used by both WorldCom and Waste Management to manage earnings?

The Diamond Foods case addresses each of the following issues except for:

The main difference between a discretionary and nondiscretionary accrual is:

Which of the following is NOT a qualitative factor when assessing materiality?

Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."?

Discuss all the factors an auditor should consider in making a materiality judgment.

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox's case?

The quality of financial reporting is an important issue in the chapter. Explain how and why the quality of financial reporting is an underlying issue in the frauds discussed in the chapter.

Use the fraud triangle to evaluate the actions by those in top management at Enron as the accounting fraud unfolded.

Which of the following was not an accounting issue in the Sunbeam case?

The best way to characterize the role of Sherron Watkins in the downfall of Enron is:

Who said "the ethics issue might possibly be mitigated by clearly disclosing aggressive accounting assumptions in the financial statement disclosures?"

Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis?

The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that:

Each of the following techniques was used by Gemstar TV Guide International in its accounting fraud except for:

The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for:

What was the original motivation by FASB on SPEs?

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

Which technique was used by both WorldCom and Waste Management to manage earnings?

The Diamond Foods case addresses each of the following issues except for:

The main difference between a discretionary and nondiscretionary accrual is:

Which of the following is NOT a qualitative factor when assessing materiality?

Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."?

Discuss all the factors an auditor should consider in making a materiality judgment.

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox's case?

The quality of financial reporting is an important issue in the chapter. Explain how and why the quality of financial reporting is an underlying issue in the frauds discussed in the chapter.

Use the fraud triangle to evaluate the actions by those in top management at Enron as the accounting fraud unfolded.

Which of the following was not an accounting issue in the Sunbeam case?

The best way to characterize the role of Sherron Watkins in the downfall of Enron is:

Who said "the ethics issue might possibly be mitigated by clearly disclosing aggressive accounting assumptions in the financial statement disclosures?"

Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis?

The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that:

Each of the following techniques was used by Gemstar TV Guide International in its accounting fraud except for:

The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for:

What was the original motivation by FASB on SPEs?

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