Online Quiz 9a

Question 1

Which ONE of the following is NOT one of the four factors that might motivate a manager to attempt to manage earnings?
 Window dressing for an IPO or a loan
 Meeting internal targets
 Income smoothing
 Savvy transaction timing
 Meeting external expectations

Answer 1

Answer: Savvy transaction timing

Question 2

Which ONE of the following is the BEST description of “income smoothing”?
Changing methods of accounting or accounting estimates with little or no disclosure of either the reason for the change or the impact of the change
Reducing information risk through maximizing both the cost of capital and the independence of GAAP adherence
Advancing the cause of high-quality accounting standards through vigorous regulatory enforcement
Computing earnings using non-GAAP methods
Carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next

Answer 2

Answer: Carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next

Question 3

Which ONE of the following is NOT one of the five labels in the earnings management continuum?
  Fraudulent reporting
 Transparent reporting
 Savvy transaction timing
 Deceptive accounting
 Aggressive accounting

Answer 3

Answer: Transparent reporting

Question 4

What is the cost of capital?
The cost of purchasing plant and equipment
The cost of incorporation fees
The cost of obtaining external financing
The cost of SEC regulatory filings
The cost hiring an auditor

Answer 4

Answer: The cost of obtaining external financing

Question 5

According to the AICPA Code of Professional Conduct, what precept should guide members of the AICPA as they encounter conflicting pressures among their clients, investors, the business community, the government, and so forth?
Violation of AICPA ethical standards disqualifies a CPA from working for companies registered with the SEC.
Good accounting standards are able to reduce information risk.
Financial statements are one of a large number of vehicles used by the managers of a company to communicate information about the company to the public.
Companies can consistently meet or beat analysts’ forecasts IF they manage earnings and they also manage the forecasts.
Acting ethically and in the public interest is also in the best long-run interest of the client.

Answer 5

Answer: Acting ethically and in the public interest is also in the best long-run interest of the client.