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1. |
Recent cases of fraudulent reporting bore warning signs missed by investors.
(Chapter
1
)
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2. |
Outright fraud (fiction) is far more difficult to detect than aggressive, self serving, or misleading accounting judgments.
(Chapter
1
)
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3. |
Fiduciaries, who have a responsibility to protect the investing public, include:
(Chapter
1
)
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4. |
Proforma profits have been referred to as "earnings with all the bad stuff taken out".
(Chapter
1
)
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5. |
Flexibility is both the genius and the greatest vulnerability of US accounting.
(Chapter
1
)
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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.
(Chapter
1
)
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7. |
A manager may distort its company's financial results in order to:
(Chapter
1
)
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8. |
Dishonest financial reporting drives investors away from the stock market.
(Chapter
1
)
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9. |
As long as there have been accounting systems, there have been accounting games.
(Chapter
1
)
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10. |
This type of company is more likely to push the accounting envelope and manipulate earnings:
(Chapter
1
)
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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.
(Chapter
2
)
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12. |
Accounting estimates should be based on:
(Chapter
2
)
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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%.
(Chapter
2
)
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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.
(Chapter
2
)
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15. |
A key factor supporting the legitimacy of an SPE is that it be independently managed.
(Chapter
2
)
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16. |
The existence of risk is a sign of a poorly run company.
(Chapter
2
)
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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.
(Chapter
2
)
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18. |
Changes in key financial ratios often signal accounting games going on beneath the surface.
(Chapter
2
)
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19. |
Manipulation of financial results usually begins with revenue recognition.
(Chapter
3
)
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20. |
The following is NOT a requirement for properly recognizing revenue:
(Chapter
3
)
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21. |
Management discretion with regard to revenue recognition includes both 'when' to recognize revenue and 'what' amount to recognize.
(Chapter
3
)
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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.
(Chapter
3
)
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23. |
Aggressive revenue recognition practices employed by MicroStrategy violated which accounting principle:
(Chapter
3
)
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24. |
Xerox was able to overstate revenue and income for 1997 through 2000 by manipulating which calculation:
(Chapter
3
)
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25. |
Capacity swaps are a 'sale' of unused fiber optic capacity between telecom companies.
(Chapter
3
)
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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.
(Chapter
3
)
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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.
(Chapter
3
)
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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.
(Chapter
3
)
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29. |
In the banking world, the chances of a new merger or acquisition increase as a bank's merger reserve is depleted.
(Chapter
4
)
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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.
(Chapter
4
)
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31. |
Items that might be included in comprehensive income include:
(Chapter
4
)
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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.
(Chapter
4
)
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33. |
Management determines if a subsidiary's functional currency is the local currency or the US dollar.
(Chapter
4
)
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34. |
Because pension accounting is so complex, management has great opportunity to 'tweak' the numbers.
(Chapter
4
)
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35. |
Financial risk is the risk that a company may become insolvent.
(Chapter
5
)
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36. |
The first step towards prudent management of financial risk is full disclosure and quantification of all financial obligations.
(Chapter
5
)
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37. |
The single biggest hazard with regard to risk for any corporation and its shareholders, creditors and employees is:
(Chapter
5
)
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38. |
Green Tree's greatest sin was:
(Chapter
5
)
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39. |
A company's line of credit is a classic example of a contingent liability.
(Chapter
5
)
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40. |
Derivatives are likely to be used by:
(Chapter
5
)
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41. |
The practice of marking energy derivatives to market as done by Enron is still acceptable practice in the US.
(Chapter
5
)
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42. |
Recent estimates put the pension fund shortfall in corporate America at hundreds of billions of dollars.
(Chapter
5
)
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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.
(Chapter
5
)
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44. |
In order to be deemed an asset. A resource must meet this criteria:
(Chapter
6
)
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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.
(Chapter
6
)
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46. |
Management determines at what point software development costs can be capitalized, but auditors must agree.
(Chapter
6
)
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47. |
Goodwill is an intangible asset created when one company acquires another.
(Chapter
6
)
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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.
(Chapter
6
)
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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.
(Chapter
6
)
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50. |
Trademarks, patents and copyrights must be valued as a part of goodwill and amortized over their estimated useful lives.
(Chapter
6
)
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51. |
In-process R&D should be capitalized and subsequently amortized.
(Chapter
6
)
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52. |
In-process R&D write offs are fertile ground for accounting mischief.
(Chapter
6
)
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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.
(Chapter
6
)
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54. |
Shamu (yes, the whale) has been depreciated over the remainder of his/her estimated lifespan.
(Chapter
6
)
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55. |
Mechanisms used to avoid scandalous related party transactions may include:
(Chapter
7
)
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56. |
Red flags which may identify hidden related party transactions include:
(Chapter
7
)
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57. |
The accounting treatment of goodwill is a good example of how International Accounting Standards (IAS) differ from Generally Accepted Accounting Principles (GAAP).
(Chapter
8
)
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58. |
The ratio of net income to sales is known as:
(Chapter
8
)
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59. |
EBITDA is an extremely accurate measure of cash flows.
(Chapter
9
)
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60. |
The International Accounting Standards Board (IASB) approach to accounting:
(Chapter
10
)
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