Forensic Accouting 2

Which of the following the correct formula for calculating acid test ratio? A. Acid test ratio = (Current assets - Inventory) / Current liabilities B. Acid test ratio = (Current assets - Interest expense) / Current liabilities C. Acid test ratio = (Current assets - Current liabilities) / Current liabilities D. Acid test ratio = Current assets / Current liabilities

A. Acid test ratio = (Current assets - Inventory) / Current liabilities

Which of the following is true of the cost principle? A.It highlights the proposition that value is not the focus of accounting and is not represented in financial statements. B. Using this principle results in the subjectivity of value assessments. C. Under this, costs are measured subjectively on actual basis. D. It results in reflecting the current values of assets, liabilities, equity, revenues, and expenses shown on the financial statements.

A. It highlights the proposition that value is not the focus of accounting and is not represented in financial statements.

Which of the following is a difference between audits and compilations? A . The auditor's objective is to obtain reasonable assurance that the financial statements are free of material misstatements, whereas the objective of a compilation is to assist management in presenting financial information without obtaining any level of assurance. B. Audits do not require an understanding of the entity's internal controls and an assessment of fraud risk, whereas compilations require an understanding of the entity's internal controls and an assessment of fraud risk. C. Audits have a narrower scope as compared to reviews, whereas compilations have a broader scope as compared to reviews. D. Audits provide a reasonable level of assurance to the users of the financial statements, whereas compilations provide a limited level of assurance to the users of the financial statements.

A. The auditor's objective is to obtain reasonable assurance that the financial statements are free of material misstatements, whereas the objective of a compilation is to assist management in presenting financial information without obtaining any level of assurance.

Which of the following is a limitation of computer-assisted audit tools? A. These tools cannot replace skilled forensic accountants, but rather allow them to focus their efforts on the highest-risk journal entries. B. These tools cannot analyze 100% of the data, but rather can choose and analyze samples from the journal entry database. C. The conclusions arrived at using these tools cannot be supported with substantial quantitative data. D. The forensic accountant will have to manually review the general ledger even after using these tools.

A. These tools cannot replace skilled forensic accountants, but rather allow them to focus their efforts on the highest-risk journal entries.

Research conducted by Churyk and Clinton (2008) identified certain "tells" or communication characteristics in the context of the management discussion and analysis section of annual reports, related to financial statement deception. Which of the following characteristics is an indicator of such deception? A. fewer words per sentences B. fewer past-tense words C. more optimistic words D. more self-references

A. fewer words per sentences

Which of the following is a profitability ratio? A. return on assets B. earnings per share C. price to earnings D. dividend yield

A. return on assets

Which of the following is one of Michael Porter's five competitive forces? A. the bargaining power of suppliers B. the bargaining power of the government C. the threat of industrial slowdown D. the threat of technological obsolescence

A. the bargaining power of suppliers

In which of the following aspects does audit differ from compilation or review? A. An audit gives reasonable level of assurance to the users, whereas a compilation or review does not give any level of assurance to the users. B. An audit requires an understanding of the entity's internal controls and assessment of fraud risk, whereas a compilation or review does not require such understanding or assessment. C. An audit requires an auditor or accountant to perform inquiry and analytical procedures, whereas a compilation or review does not require such procedures. D. An audit is performed to obtain limited assurance that there are no material modifications that should be made to the financial statements, whereas a compilation or review is performed without obtaining any level of assurance.

B. An audit requires an understanding of the entity's internal controls and assessment of fraud risk, whereas a compilation or review does not require such understanding or assessment.

Which of the following is the correct formula for calculating sustainable growth rate? A. Sustainable growth rate = Return on sales × Return on equity B. Sustainable growth rate = Retention ratio × Return on equity C. Sustainable growth rate = Retention ratio × Return on assets D. Sustainable growth rate = Return on sales × Return on assets

B. Sustainable growth rate = Retention ratio × Return on equity

Blue Angel, Inc. generated sales of $420,000 in the year 2014. The accountant provided the following additional information: Net Profit Margin 3% Total Shares Equality 112000 Total Assets 280000 A. 1.8% B. 5% C. 11.25% D. 0.8%

C. 11.25

Since 2002, the FASB and the International Accounting Standards Board (IASB) have been working to merge U.S. GAAP with international financial reporting standards (IFRS). Which of the following terms is used to describe this process? A. merger B. integration C. convergence D. unification

C. convergence

Which of the following is an accounting choice that violates GAAP? A. recording sales after they are realized, not before it B. recording intangible assets C. recording fictitious inventory D. using estimates to determine provisions for bad debts

C. recording fictitious inventory

Which of the following is true of Altman's Z-Score Boundaries? A. If a publicly traded non-manufacturing firm has a Z-score of 1.81, it predicts bankruptcy. B. If a publicly traded manufacturing firm has a Z-score of 2.60, it indicates non-bankruptcy. C. If a publicly traded manufacturing firm has a Z-score of 1.42, the firm is in the zone of ignorance. D. The zone of ignorance for privately held manufacturing firms is 1.23 to 2.90.

D. The zone of ignorance for privately held manufacturing firms is 1.23 to 2.90.

Which of the following is Altman's conventional Z-score model for publicly traded manufacturing firms? A. Z = 0.717(X1) + 0.847(X2) + 3.107(X3) + 0.420(X4) + 0.998(X5) B. Z = 1.4(X1) + 0.847(X2) + 3.3(X3) + 1.05(X4) + 0.998(X5) C. Z = 6.65(X1) + 3.26(X2) + 6.72(X3) + 1.05(X4) D. Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 0.999(X5)

D. Z = 1.2(X1) + 1.4(X2) + 3.3(X3) + 0.6(X4) + 0.999(X5

Which of the following is the correct formula for calculating dividend yield?

Dividend yield ratio = Dividends per share / Market value per share

Which of the following is true of the application of ratio analysis?

These are as reliable as the source data.

Which of the following is a systematic technique for categorizing words into content categories using coding rules?

content analysis

Which of the following is true of the compound annual growth rate?

it reflects average annual growth over a period of multiple years.

Which of the following is true of a balance sheet?

it shows the financial position of an organization on a specific date.

Which of the following is a fundamental accounting principle?

objectivity principle