7-1
Chapter 07 Earnings Management Answer Key
Multiple Choice Questions
1.
Who linked earnings management to an excessive zeal to project smoother earnings from
year to year that casts a pall over the quality of the underlying numbers?
2.
Which of the following is NOT a motivation to manage earnings?
7-2
3.
An unusual aspect of the Green Mountain case is it included:
4.
What is the SEC’s position on companies that communicate with investors on social
media?
7-3
5.
Which of the following has NOT been found to be a measure of a non-GAAP financial
metric?
6.
Motivations to smooth net income over time include each of the following except:
7.
A common method used to smooth net income over time is:
7-4
8.
If a company is managing its earnings, which of the ethical theories are they most likely
following?
9.
Which of the following is NOT considered “earnings management?”
7-5
10.
Which technique was used by both WorldCom and Waste Management to manage
earnings?
11.
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?”
7-6
12.
Which of the following authors(s) focus(es) on “management’s intent to deceive the
stakeholders by using accounting devices to positively influence reported earnings?”
13.
Which of the following authors(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?
7-7
14.
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?”
15.
Who distinguished between earnings manipulation and earnings management?
7-8
16.
One result of earnings management is:
17.
In surveys of managers, which technique to manage earnings was considered most
acceptable?
7-9
18.
Needles suggests that making judgments about what earnings management is becomes
difficult because:
19.
Each of the following is a finding of a survey of CFOs about their perceptions of earnings
quality except:
7-10
20.
Accruals that are based on estimated changes in fundamental economic performance of
the firm are:
21.
Accruals are potentially troublesome because:
7-11
22.
The main difference between a discretionary and nondiscretionary accrual is:
23.
The concept that earnings management might align with conservative versus aggressive
reporting is known as the:
7-12
24.
Which of the following is NOT a qualitative factor when assessing materiality?
25.
Vorhies identities four perspectives to help CPAs identify key internal control exceptions
under the Sarbanes Oxley Act (SOX) including:
7-13
26.
Which of the following is NOT required of management under Section 302 of the SOX?
27.
In the
Matrixx
Initiatives
v.
Siracusano
case, the Supreme Court adopted the position
about materiality that:
7-14
28.
Inherent risk refers to:
29.
Which of the following is NOT one of the techniques used by Gemstar TV Guide
International in its accounting fraud?
7-15
30.
“Cookie jar reserves” can best be described as:
31.
All of the following are examples of “Recording revenue too soon or of questionable
quality” except:
7-16
32.
All of the following are examples of “Boosting Income with One-Time Gains” except:
33.
Auditors need to be attuned to the red flags that fraud may exist because:
7-17
34.
Which of the following was not pointed to by the SEC as a motivation for fraud in the
Xerox case?
35.
Which of the following earnings management techniques were not used in the Lucent
Technologies, Inc.’s case?
7-18
36.
Which of the following was not true according to the Enron case?
37.
Which of the following was not a technique used by Enron to manage earnings?
7-19
38.
Which of the following partnerships that Enron created eventually lead to its demise?
39.
What was the original motivation by FASB on SPEs?
7-20
40.
There are several aspects of the Enron fraud that are dealt with directly in SOX further
connecting Enron to reform in the accounting profession. Which of the following is true?
41.
The best way to characterize the role of Sherron Watkins in the downfall of Enron is: