Read 'Chapter 1: Profits You Can Trust - and the Profits You Can't' & answer the following question(s): |
1. | Recent cases of fraudulent reporting bore warning signs missed by investors. |
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2. | Outright fraud (fiction) is far more difficult to detect than aggressive, self serving, or misleading accounting judgments. |
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3. | Fiduciaries, who have a responsibility to protect the investing public, include: |
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4. | Proforma profits have been referred to as "earnings with all the bad stuff taken out". |
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5. | Flexibility is both the genius and the greatest vulnerability of US accounting. |
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6. | Under the current system of accounting, many corporate managers, directors, lawyers, analysts, lenders, and auditors have powerful incentives to ignore or abet deceptive financial reporting. |
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7. | A manager may distort its company's financial results in order to: |
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8. | Dishonest financial reporting drives investors away from the stock market. |
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9. | As long as there have been accounting systems, there have been accounting games. |
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10. | This type of company is more likely to push the accounting envelope and manipulate earnings: |
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Read 'Chapter 2: Landmines: Where to Look' & answer the following question(s): |
11. | One revenue inflating trick of Enron was to report the entire amount of a trading transaction as revenue instead of reporting the actual commission. |
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12. | Accounting estimates should be based on: |
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13. | A red flag to Enron investors was when accounts receivable increased by 65% while its allowance for doubtful accounts fell 50%. |
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14. | Mark to Market accounting is a reasonable way to value securities as long as there is an active market for the securities. |
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15. | A key factor supporting the legitimacy of an SPE is that it be independently managed. |
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16. | The existence of risk is a sign of a poorly run company. |
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17. | A vague and confusing discussion of a company's related party transactions could indicate that the company has something to hide. |
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18. | Changes in key financial ratios often signal accounting games going on beneath the surface. |
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Read 'Chapter 3: Revenue Recognition: What Is a Sale, And When Do You Book It?' & answer the following question(s): |
19. | Manipulation of financial results usually begins with revenue recognition. |
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20. | The following is NOT a requirement for properly recognizing revenue: |
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21. | Management discretion with regard to revenue recognition includes both 'when' to recognize revenue and 'what' amount to recognize. |
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22. | Priceline.com claimed that 'grossing up' sales properly recognized revenue as Priceline.com was the 'merchant of record' which meant they assumed all the risks of ownership. |
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23. | Aggressive revenue recognition practices employed by MicroStrategy violated which accounting principle: |
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24. | Xerox was able to overstate revenue and income for 1997 through 2000 by manipulating which calculation: |
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25. | Capacity swaps are a 'sale' of unused fiber optic capacity between telecom companies. |
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26. | A game played by telecoms involves recording revenue for the sale of fiber optic capacity to other telecoms while capitalizing (i.e. not expensing) the offsetting purchase of capacity. |
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27. | Percentage of completion is an accounting practice which allows companies to recognize revenue gradually over the life of a long term project. |
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28. | One time gains, such as gains from the sale of real estate, should be segregated from recurring revenue on the income statement. |
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Read 'Chapter 4: Provisions and Reserves: When Revenue Games Aren't Enough' & answer the following question(s): |
29. | In the banking world, the chances of a new merger or acquisition increase as a bank's merger reserve is depleted. |
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30. | As a general rule, companies are eager to highlight reserves as they are reversed, but are less eager to highlight reserves when created. |
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31. | Items that might be included in comprehensive income include: |
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32. | Gains or losses from currency translation are reported on the income statement if the subsidiary's functional currency is the US dollar. |
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33. | Management determines if a subsidiary's functional currency is the local currency or the US dollar. |
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34. | Because pension accounting is so complex, management has great opportunity to 'tweak' the numbers. |
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Read 'Chapter 5: A Landscape of Hazard: The New World of Business Risk' & answer the following question(s): |
35. | Financial risk is the risk that a company may become insolvent. |
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36. | The first step towards prudent management of financial risk is full disclosure and quantification of all financial obligations. |
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37. | The single biggest hazard with regard to risk for any corporation and its shareholders, creditors and employees is: |
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38. | Green Tree's greatest sin was: |
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39. | A company's line of credit is a classic example of a contingent liability. |
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40. | Derivatives are likely to be used by: |
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41. | The practice of marking energy derivatives to market as done by Enron is still acceptable practice in the US. |
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42. | Recent estimates put the pension fund shortfall in corporate America at hundreds of billions of dollars. |
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43. | The federal Pension Benefit Guaranty Corporation (PBGC) has the authority to conduct a pension plan audit on a corporation and demand immediate remedy of underfunding. |
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Read 'Chapter 6: Goodwill Hunting: How to Tell Hard Assets from Hot Air' & answer the following question(s): |
44. | In order to be deemed an asset. A resource must meet this criteria: |
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45. | Generally, software development companies must capitalize and subsequently amortize software development costs until the point at which a workable prototype is produced. After that point, the development costs must be expensed. |
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46. | Management determines at what point software development costs can be capitalized, but auditors must agree. |
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47. | Goodwill is an intangible asset created when one company acquires another. |
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48. | Prior to the FASB interpretation released in 2001, no goodwill was recognized under the pooling of interests accounting for business combinations because the combination was considered a true merger rather than an acquisition. |
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49. | According to the 2001 FASB pronouncement, goodwill is only written down when 'impaired', that is, when its value has declined significantly. |
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50. | Trademarks, patents and copyrights must be valued as a part of goodwill and amortized over their estimated useful lives. |
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51. | In-process R&D should be capitalized and subsequently amortized. |
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52. | In-process R&D write offs are fertile ground for accounting mischief. |
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53. | The annual valuation and analysis of goodwill may result in an increase and 'write up' of the value of goodwill. |
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54. | Shamu (yes, the whale) has been depreciated over the remainder of his/her estimated lifespan. |
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Read 'Chapter 7: The (Inner) Circle Game: Ripping Off Shareholders with Related-Party Transactions' & answer the following question(s): |
55. | Mechanisms used to avoid scandalous related party transactions may include: |
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56. | Red flags which may identify hidden related party transactions include: |
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Read 'Chapter 8: The Measure of Business Performance: Comparisons and Benchmarks' & answer the following question(s): |
57. | The accounting treatment of goodwill is a good example of how International Accounting Standards (IAS) differ from Generally Accepted Accounting Principles (GAAP). |
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58. | The ratio of net income to sales is known as: |
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Read 'Chapter 9: Let's Make up Some Numbers: EBITDA, Pro Forma Earnings, and Stupid Cash Tricks' & answer the following question(s): |
59. | EBITDA is an extremely accurate measure of cash flows. |
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Read 'Chapter 10: Fair Value Toward Trustworthy Corporate Reporting' & answer the following question(s): |
60. | The International Accounting Standards Board (IASB) approach to accounting: |
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