Ethics

When decisions are altered to affect cash flows and net income for a period of time, the company has engaged in Multiple choice question. Using cookie-jar reserves Operating earnings management Smoothing net income Accounting earnings management

Operating earnings management

How did the lack of strong controls contribute to the fraud at Enron? (Check all that apply). Multiple select question. Oversight of the internal controls by the board was inadequate or nonexistent Culture of fear within the organization Top management overrode or ignored existing controls Board actions were blocked by management Failure to establish a code of ethics

Oversight of the internal controls by the board was inadequate or nonexistent Culture of fear within the organization Top management overrode or ignored existing controls

True or false: A disclosure in the financial statements may be used to rationalize an unethical action with respect to earnings management.

True

Results of the CFO study of earnings management indicates that: (Check all that apply). Multiple select question. A large majority of earnings misrepresentations are due to a desire to influence stock price Accruals are necessary to align reported earnings with cash flows Earnings misrepresentations are due to a failure of internal controls A large majority of earnings misrepresentations are due to pressure to hit earnings benchmarks Earnings management is not controllable because of management pressure

A large majority of earnings misrepresentations are due to a desire to influence stock price A large majority of earnings misrepresentations are due to pressure to hit earnings benchmarks

Which of the following are red flags of earnings management? (Select all that apply) Multiple select question. Decrease in accounts receivable Change in members of upper management Short-term borrowing at year end Change in auditors Change in accounting policies toward more conservative application Reduction in reserves

Change in members of upper management Short-term borrowing at year end Change in auditors Reduction in reserves

Which of the following points were raised by Dechow and Skinner in characterizing earnings management? (Check all that apply). Multiple select question. Difficult to operationalize earnings management Fraudulent accounting practices may be acceptable Aggressive accounting may be acceptable Purposeful intervention in the external reporting process Managerial intent influences how earnings are managed

Difficult to operationalize earnings management Aggressive accounting may be acceptable Managerial intent influences how earnings are managed

Which of the following are red flags of earnings management? (Select all that apply) Multiple select question. Reserving for possible future losses Continuous sources of income Frequent acquisition of businesses One-time sources of income Growth in revenue that does not line up with inventory

Frequent acquisition of businesses One-time sources of income Growth in revenue that does not line up with inventory

Which of the following factors served as an incentive for how the culture at Enron worked? Multiple choice question. Ignorance of the law Growth at all costs Acting in the best interests of shareholders Expansion into the electricity industry

Growth at all costs

How did Watkins characterize the environment at Enron? Multiple choice question. Unethical tone at the top It was a risky place to work Inattentive board of directors Excessive competition motivated improper actions

It was a risky place to work

How did the structured partnerships help Enron to enhance its financial results? (Check all that apply). Multiple select question. Kept debt off the books Increased equity ownership Recorded gains on sales of operating assets Increased debt obligations

Kept debt off the books Recorded gains on sales of operating assets

The device used by Enron to engineer the results of the partnerships was called Multiple choice question. Special-purpose entities Special-purpose assets Independent partnerships Independent equity ownership

Special-purpose entities

The theme of Levitt's statement on earnings management can best be described as Multiple choice question. The Numbers Game Fraudulent financial reporting The emphasis on long-term earnings The Earnings Game

The Numbers Game

How did Oracle use their "cloud credits" to record bogus revenue? Multiple choice question. They recorded traditional software licenses as cloud subscriptions They offered cloud products at significant discounts They underestimated their allowance for bad d

They recorded traditional software licenses as cloud subscriptions

True or false: Under accounting rules at the time, control over the partnership entities by Enron was established by exercising management rights over the entity's operations.

True

Victor Alston, CEO of Ixia, misled investors by: Multiple choice question. concealing related party transactions understating allowance for doubtful accounts and bad debts expense accelerating revenue recognition from multiple-element arrangements understating liabilities

accelerating revenue recognition from multiple-element arrangements

Managing earnings expectations: (Select all that apply) Multiple select question. can help the firm meet earnings targets and reap market rewards. can be detrimental to the long-term value of the firm. puts the integrity of management in question. sets in motion organizational behaviors that damage the firm. lends more credibility to capital markets helps maintain the integrity of management.

can help the firm meet earnings targets and reap market rewards. can be detrimental to the long-term value of the firm. puts the integrity of management in question. sets in motion organizational behaviors that damage the firm.

When companies artificially inflate or deflate their revenues or profits, _______________ __________ has occured.

earnings management

The underlying reason earnings may be manipulated is because estimates and ____________are inherent on the accounting process.

judgement

Regulation S-K requires issuer's of quarterly filings to discuss material changes in Multiple choice question. executive management and board members liquidity and financial resources external auditor revenue recognition policies

liquidity and financial resources

Under General Motors internal accounting controls, during the period from 2012 to 2014, employees failed to: Multiple choice question. recognize revenue from multi-element arrangements provide recall estimates when probable estimate the allowance for doubtful accounts properly account for potential product recalls

properly account for potential product recalls

To increase earnings when reported amounts were too low, Enron used

reserves

Xerox's fraudulent accounting policies are referred to as ____________ lease accounting devices.

topside

The purpose of forward-looking statements is to improve Multiple choice question. responsibility transparency oversight

transparency

During the period from 2012 to 2014, General Motors misled investors by: Multiple choice question. understating allowance for doubtful accounts understating liabilities overstating expenses concealing related party transactions

understating liabilities

Results of the CFO study of earnings management indicate which of the following red flags of possible earnings misrepresentations by responding CFOs? (Check all that apply). Multiple select question. Absence of unexplained accruals Presence of various long-term estimates Earnings and underlying cash flows being in tandem with each other Absence of consistent reporting methods

Presence of various long-term estimates Absence of consistent reporting methods

Which of the following could a vendor providing cloud computing services use to overstate their revenues? Multiple select question. Provide a cloud product for free allocating revenues to other modules Lump all services together and record them all as cloud services Sell a cloud subscription to a pilot population but book it as if it were for the whole company Allocate no revenues to cloud computing an book all revenues for other modules

Provide a cloud product for free allocating revenues to other modules Lump all services together and record them all as cloud services Sell a cloud subscription to a pilot population but book it as if it were for the whole company

Which of the following amounts might be restated because of errors in reserve or provisions? (Check all that apply). Multiple select question. Provision for loan losses Lease liabilities Bad debt expense Inventory Unrealized gains and losses from investments

Provision for loan losses Bad debt expense Inventory

Which of the following best describes the topside lease accounting techniques used by Xerox to accelerate reported lease revenue? Multiple choice question. Recorded bogus lease revenue Altered value determinations for both financial reporting and internal operating purposes Pulled forward a portion of finance income and recognized it immediately as equipment revenue Delayed reporting lease expenses to a later period

Pulled forward a portion of finance income and recognized it immediately as equipment revenue

The objective of using cookie-jar reserves is Multiple choice question. Make big-bath charges Implement creative acquisition accounting Find ways around the materiality guidelines Smooth net income over time

Smooth net income over time

David Fuselier, the CEO of Integrated Freight Corporation, misled investors by: Multiple choice question. concealing related party transactions understating liabilities understating allowance for doubtful accounts overstating expenses

concealing related party transactions

What is a legitimate reason to establish an SPE? manage earnings control risk decrease transparency increase the amount of debt on the books

control risk

The overriding cause of the fraud at Enron in addition to inadequate internal controls was a failure in its _______________ __________ systems.

corporate governance

From a cultural perspective, it could be said that Enron's actions reflected a(n) ________ of _______________.

culture greed

Which of the following points were raised by Dechow and Skinner in characterizing earnings management? (Check all that apply). Multiple select question. Difficult to operationalize earnings management Fraudulent accounting practices may be acceptable Purposeful intervention in the external reporting process Managerial intent influences how earnings are managed Aggressive accounting may be acceptable

Difficult to operationalize earnings management Managerial intent influences how earnings are managed Aggressive accounting may be acceptable

Improper accounting for other ____________________ ________________ (OCI) transactions is an accounting error and can trigger financial statement restatement.

comprehensive income

Actions or omissions intended to hide or distort the real financial performance or financial conditions are known as ___________ ________

financial shenanigans

The original motivation by FASB for creating SPEs was to establish a mechanism to encourage companies to invest in needed assets while keeping related debt off the books increasing earnings keeping the SPE independent from the parent company increasing transparency

keeping related debt off the books

Results of the CFO study of earnings management indicate which of the following red flags of possible earnings misrepresentations by responding CFOs? (Check all that apply). Multiple select question. Earnings management can be exposed from the outside Performance-signaling motivations Large and unexplained accruals and changes in accruals Firm culture that allows earnings management Persistent deviations between earnings and underlying cash flows

Large and unexplained accruals and changes in accruals Firm culture that allows earnings management Persistent deviations between earnings and underlying cash flows

What operating issue was raised by Watkins in her warning letter to Ken Lay? Multiple choice question. Lawyers did not exercise due diligence in approving the SPEs Enron was about to collapse Problems with Enron's partnerships Skilling's resignation

Problems with Enron's partnerships

Which of the following is the example given by Bruns and Merchant of using operating decisions to manipulate earnings? Multiple choice question. Using cookie jar reserves to smooth net income Never recording needed repairs Purposefully accelerating the making of discretionary repairs to an earlier period Purposefully delaying making needed repairs to a subsequent period

Purposefully delaying making needed repairs to a subsequent period

Enron's debt load was so high that it forced the company into financing projects with borrowings that were kept off the

balance sheet

Collection must _____ for revenue recognition to occur. Multiple choice question. have already occurred be reasonably assured be absolutely assured

be reasonably assured

Non-GAAP measures should better reflect ____________ ___________ than GAAP amounts alone.

economic reality

If fraudulent activity is suspected or has been detected, a(n) ___________ accountant may be brought in to assess the magnitude of the fraud activity.

forensic

UTi Worldwide Inc. misled investors by: Multiple choice question. improperly recognizing revenue from multiple-element arrangements understating allowance for doubtful accounts improperly disclosing changes in financial condition concealing related party transactions

improperly disclosing changes in financial condition

The purposes of forward-looking statements are to (select all that apply): Multiple select question. provide earning guidance about the future ensure that GAAP is followed guide investors provide earnings guidance about past events increase transparency

provide earning guidance about the future guide investors increase transparency

Which of the following devices can be used to smooth net income? (Check all that apply). Multiple select question. Accelerating the recognition of expense Buying back treasury stock Channel stuffing Cookie-jar reserves

Accelerating the recognition of expense Channel stuffing Cookie-jar reserves

What should be done when companies meet or beat earnings by manipulating earnings and analysts' earnings expectations? Multiple choice question. The company should improve relations with the capital markets Boards need to intervene in the earnings expectations process Boards need to take accountability for integrity of the corporate reporting system The company should always meet or beat analysts' earnings expectations

Boards need to take accountability for integrity of the corporate reporting system

Which of the following are criteria for revenue recognition? (Select all that apply) Multiple select question. Collection is reasonably assured The seller's price to the buyer is negotiable Delivery has occurred or services have been provided Collection is absolutely assured Persuasive evidence of an arrangement exists

Collection is reasonably assured Delivery has occurred or services have been provided Persuasive evidence of an arrangement exists

Which of the following techniques were completed by Gemstar to overstate earnings? (select all that apply) Multiple select question. Using Bill and Hold transactions Engaging in round-trip transactions Creating cookie-jar reserves Decreasing expenses Recording revenues for nonexistent agreements

Engaging in round-trip transactions Creating cookie-jar reserves Recording revenues for nonexistent agreements

What motivated the actions by management of Enron? (Check all that apply). Multiple select question. Conflicts of interest Enhance stock option values Increase profits Ethical behavior

Enhance stock option values Increase profits

Jeff Skilling suggested that the initial problem at Enron what based on what? Multiple choice question. Gas producers were persuaded to sell Enron their gas reserves. Enron needed long-term supply contracts, but producers were only willing to commit to 30 day deals due to the volatility in the industry. Equity financing partnerships with a minimum of 3 percent outside ownership giving outside owners control over operations. The Board of Directors approved the Chewco deal setting an unethical tone for the organization.

Enron needed long-term supply contracts, but producers were only willing to commit to 30 day deals due to the volatility in the industry.

What are the effects of income smoothing on earnings? Multiple choice question. Creating an earnings stream with wide fluctuations Erosion in the quality of earnings Representational faithfulness of accounting information is enhanced

Erosion in the quality of earnings

Under ASC Topic 850-10-50-6 Related Party Disclosures, if the reporting entity and another entity are under management control that would result in significantly different operating results if they were autonomous, which statement is correct? Multiple choice question. If there are no significant transactions between the entities, the relationship need not be disclosed Even if there are no transactions between the entities, the relationship should be disclosed

Even if there are no transactions between the entities, the relationship should be disclosed

Why was the quality of Enron's financial reports poor? (Check all that apply) Multiple select question. Failed to adequately disclose related-party transactions Gains from sales of assets to SPEs masked true earnings Inadequate explanations for the use of reserves Used SPEs to hide debt Accelerated the recording of gains from sales of assets Lack of independence of Andersen

Failed to adequately disclose related-party transactions Gains from sales of assets to SPEs masked true earnings Inadequate explanations for the use of reserves Used SPEs to hide debt

Why were Fastow's actions with regard to Chewco misleading? (Check all that apply). Multiple select question. Failed to mention he owned a majority of the stock of Chewco Had no relationship with Chewco Failed to mention that one of his protégés managed Chewco Failed to mention there was virtually no outside ownership of Chewco

Failed to mention that one of his protégés managed Chewco Failed to mention there was virtually no outside ownership of Chewco

Each of the following was an accounting violation at Enron: (Check all that apply). Multiple select question. Reporting one-time gains from asset sales in operating income Recording realized gains using market values Failure to consolidate the results of Chewco with Enron Overstating earnings from mark-to-market accounting Failure to disclose adequately the related party activities with SPEs

Failure to consolidate the results of Chewco with Enron Overstating earnings from mark-to-market accounting Failure to disclose adequately the related party activities with SPEs

Which of the following are financial shenanigan techniques that can be used to hide or distort financial performance or financial condition? (Check all that apply). Multiple select question. Inflating equity Enhancing disclosures Inflating current reported income Deflating current reported income

Inflating current reported income Deflating current reported income

Which of the following is outlined by Regulation G? (Select all that apply) Multiple select question. GAAP presentation of information must have equal or greater prominence than non-GAAP financial measures. Disclosure of the reasons why non-GAAP measures provide useful information to investors is required. Both non-GAAP financial measures and the reconciliation to GAAP can be included directly in the financial statements. EBITDA is allowed in the financial statements as long as a GAAP comparison is included. Reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures is required.

GAAP presentation of information must have equal or greater prominence than non-GAAP financial measures. Disclosure of the reasons why non-GAAP measures provide useful information to investors is required. Reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures is required.

What motivated the actions by management of Enron? (Check all that apply). Multiple select question. Increase profits Ethical behavior Conflicts of interest Enhance stock option values

Increase profits Enhance stock option values

Each of the following techniques was used by Enron to manage earnings: (Check all that apply). Inflated estimates of mark-to-market Used reserves to inflate income when reported amounts were too low Assets were bought from the SPEs at unrealistically low prices. Overrode internal controls Failed to write-down fixed assets

Inflated estimates of mark-to-market Used reserves to inflate income when reported amounts were too low Overrode internal controls

What was the finding identified by Bruns and Merchant about how managers view the ethics of earnings management? Multiple choice question. Managers believe earnings management is an ethical practice Managers believe the use of operating decisions to manipulate earnings could be misleading to users of the statements Managers believe that manipulation by accounting methods was more acceptable than using operating decisions Managers disagreed on whether earnings management was acceptable

Managers disagreed on whether earnings management was acceptable

The underlying technique used to carry out accounting shenanigans is: Multiple choice question. Misapplication of accounting principles Improper auditing techniques Misreporting of financial disclosures Improper audit report

Misapplication of accounting principles

Which of the following actions and conclusions of KPMG about Gemstar were unreasonable? (Check all that apply). Multiple select question. Reliance on representations by management Accepted all disclosures in the statements Failed to properly consider materiality issues Gemstar's financial statements were fairly presented in conformity with GAAP Considered both quantitative and qualitative materiality factors

Reliance on representations by management Failed to properly consider materiality issues Gemstar's financial statements were fairly presented in conformity with GAAP

Which of the following provisions of SOX resulted from the Enron fraud? (Check all that apply). Multiple select question. Prohibits the use of SPEs Requires disclosure of off-balance-sheet financing activities Establishes rules to account for variable-interest entities Requires disclosure of related-party transactions Prohibits internal audit services for audit clients

Requires disclosure of off-balance-sheet financing activities Requires disclosure of related-party transactions Prohibits internal audit services for audit clients

How was Enron able to establish control over the partnership entities and keep its operations off their books? Multiple choice question. Showed that it had a majority interest in the partnerships Owned 100% of the partnerships Showed that at least 3% of the equity was owned by outside interests Established the economic logic of how the partnerships were formed

Showed that at least 3% of the equity was owned by outside interests

In his statement on earnings management, Levitt links the practice to: (Select all that apply) Multiple select question. Smoothing net income Reporting higher earnings each year Material misstatements in the financial statements Culture of gamesmanship Meeting or exceeding financial analysts' expectations

Smoothing net income Culture of gamesmanship Meeting or exceeding financial analysts' expectations

Which of the following is true about non-GAAP financial measures? Multiple choice question. The external auditor must provide reasonable assurance to the correctness of non-GAAP financial measures. The external auditor is not responsible for non-GAAP financial measures as they are not in the financial statements. The external auditor must provide absolute assurance to the correctness of non-GAAP financial measures. The external auditor must test a reasonable percentage of non-GAAP financial measures to ensure their accuracy.

The external auditor is not responsible for non-GAAP financial measures as they are not in the financial statements.

Earnings management can occur by: (Check all that apply). Multiple select question. Using aggressive accounting techniques Altering cash flows Establishing or altering estimates Altering operating decisions Manipulating stock prices to enhance earnings

Using aggressive accounting techniques Establishing or altering estimates Altering operating decisions

How did the board's actions violate Enron's code of ethics with regard to Fastow? Multiple choice question. Waived the ownership interest requirement Waived the conflict of interest requirement Prohibited outside ownership of the entity Prohibited Fastow from becoming involved with a related-party entity

Waived the conflict of interest requirement

The new revenue recognition standard: (Select all that apply) Multiple select question. requires extensive disclosures allows full revenue recognition when more than 50% of obligations within one contract are fulfilled. is more rules-based. specifies a five step process to recognize revenue requires separate allocation of revenue recognition when multiple obligations within one contract exist.

requires extensive disclosures specifies a five step process to recognize revenue requires separate allocation of revenue recognition when multiple obligations within one contract exist.

The principle that states that revenues should be recognized when the firm has delivered a product, and the cash receipt is reasonably assured, is the _______________________ ______________________ principle

revenue recognition

So-called _____ restatements have been fairly steady while _____ restatements have been declining.

revision reissuance

Non-GAAP measures (select all that apply): Multiple choice question. should better reflect economic reality may incentivize auditors to find alternative ways to present performance

should better reflect economic reality

Under GAAP, revenue from a multiple-element arrangement must be allocated based on (select all that apply): Multiple select question. vendor-specific objective evidence separating products onto different purchase orders a consistent price paid by customers fair value

vendor-specific objective evidence a consistent price paid by customers fair value