2. Which of the following is an example of aggressive accounting or fraud?

1 Detecting Earnings Management Test Bank

Chapter 1

1. Earnings manipulation is:

• The same as earnings management
• Aggressive accounting and/or fraud
• The result of conservative accounting
• The application of accrual accounting
• None of the above

• Which of the following is an example of aggressive accounting or fraud?

• Revenue recognition based on bill and hold sales
• Expensing software development costs as incurred
• Revenue recognition after sale, delivery and acceptance
• Expensing advertising and other marketing costs
• All of the above

3. Opportunism represents:

• The application of generally accepted accounting principles
• Self-interest with guile
• Whistle-blowing
• Exercising stock options
• None of the above

• Which of the following is part of corporate governance?

• Earnings restatements
• The structure of the board of directors
• Generally accepted accounting principles
• The issuance of new securities by investment bankers
• None of the above

• The Sarbanes-Oxley Act of 2002 has an impact on which of the following?

• Auditing standard setting
• Requires the CEO & CFO to certify that the financial reports are “fairly

presented”

• Corporate governance
• Establishes the new regulatory board, the Public Company Accounting

Oversight Board

• All of the above

(Detecting Earnings Management 1e Gary Giroux) (Answer at the end of Test Bank) 1 / 4

2

6. Earnings management:

• Can use conservative accounting techniques
• If aggressive, can involve fraud
• Represents methods to adjust earnings to a desired outcome
• Is usually the responsibility of the chief financial officer
• All of the above

• Which of the following is often used for income smoothing?

• Big bath write-offs
• Cookie jar reserves
• Earnings restatements
• Large non-recurring items
• All of the above

• Which of the following is a function of the Public Company Accounting Oversight

Board?

• Establishes accounting standards
• Establishes auditing standards
• Regulates securities markets
• Regulates attorneys and investment bankers
• All of the above

9. An environment of earnings management is likely associated with:

• Executive compensation problems
• Poor board committee structure
• A strong CEO with substantial perks
• Investment banking problems
• All of the above

10. If an auditor finds evidence of fraud, the auditor should:

• Resign immediately
• Report the fraud to the SEC
• Report the fraud to higher levels of management
• Call the fraud immaterial and give the client an unqualified opinion
• None of the above
• / 4

3 Chapter 2

• Corporate scandals of the 21

st century included which of the following?

• Enron—restated earnings because of various problems related to special

purpose entities

• Global Crossing—writeoffs of goodwill & long-lived assets
• Tyco—questionable practices with acquisitions
• WorldCom—expenses improperly capitalized
• All of the above

• According to CNNMoney.com, which of the following was one of the top 10

scoundrels in 2002?

• Dennis Kozlowski, former CEO of Tyco
• Jack Welch, former CEO of General Electric
• Andrew Levitt, former chairman of the SEC
• Steve jobs, CEO of Apple Computer
• All of the above

• Which of the following companies wrote off $54 billion in goodwill from a recent

merger?

• General Electric
• AOL-Time Warner
• Enron
• Microsoft
• None of the above

• Arthur Andersen was the auditor of which of the following companies which had

scandal problems?

• WorldCom
• Enron
• Qwest
• Global Crossing
• All of the above

• “Chainsaw Al” Dunlap was associated with revenue recognition manipulation of

which of these companies?

• Cendant
• IBM
• Waste Management
• Sunbeam
• None of the above 3 / 4

4

6. Utility pyramiding was associated with:

• The McKesson & Robbins fraud of 1937
• The Penn Central bankruptcy of 1970
• The collapse of the Samuel Insull’s holding company in the 1920s-30s
• The computer fraud of Equity Funding
• All of the above

• Which of the following are scandals from the 1980s?

• BCCI scandal
• Lincoln Savings
• Bankruptcy of Johns Manville
• ZZZZ Best
• All of the above

• The greatest scandal of the 19

th century was Credit Mobilier, which was associated

with:

• Cash bribes associated with the construction of the Union Pacific Railroad in

the 1860s

• The corruption of Boss Tweed of Tammany Hall
• A bear run conducted by Daniel Drew and Jay Gould
• The Depression of 1893
• None of the above

9. CPA licensing started:

• With the Securities & Exchange Commission Act of 1934
• Regulation FD
• Licensing by New York state in 1896
• The Sherman Antitrust Act of 1890
• None of the above

10. The Sarbanes-Oxley Act:

• Established the Public Company Accounting Oversight Board
• Established the Securities & Exchange Commission
• Established the Financial Accounting Standards Board
• Established the Committee on Accounting Procedure
• All of the above

• / 4