ACP AUDITING - RISK BASED APPROACH
10th Edition
ISBN: 9780357195079
Author: JOHNSTONE
Publisher: CENGAGE C
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Question
Chapter 9, Problem 21MCQ
To determine
Introduction:
Revenue transaction involves exchange of goods and services for the cash payments or for credit.
To select:
Choose the incorrect option from the proposed statements that relates to the given condition.
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Managers are often faced with conditions that may cause earnings to be managed. There is a difference between managing income and manipulating earnings. Excluding the ethical and fraud issues associated with managing earnings:
Identify conditions that would lead an analysist to expect that management might attempt to manage earnings upward and,
Identify conditions that would lead an analysist to expect that management might attempt to manage earnings downward.
1. Of the following, choose the one that describes a situation where liabilities and expenses are manipulated to make a company appear less profitable?
A. Liabilities are capitalized to increase revenues.
B. Failure to record insurance expense for the period.
C. Failure to record employee payroll earned but not paid as of period end.
D. Failure to record warranty costs when the facts suggest that disclosure is more appropriate accounting treatment.
E. None of the above.
The concept of earnings quality has several dimensions, but two characteristics often dominate.
The accounting information should be a fair representation of performance for the reporting period and,
The information should provide relevant information to forecast expected future earnings.
Provide a specific example of poor accounting quality that would hinder to forecasting of expected future earnings.
Chapter 9 Solutions
ACP AUDITING - RISK BASED APPROACH
Ch. 9 - Prob. 1TFQCh. 9 - Prob. 2TFQCh. 9 - Prob. 3TFQCh. 9 - Prob. 4TFQCh. 9 - Prob. 5TFQCh. 9 - Prob. 6TFQCh. 9 - Prob. 7TFQCh. 9 - Prob. 8TFQCh. 9 - Prob. 9TFQCh. 9 - Prob. 10TFQ
Ch. 9 - Prob. 11TFQCh. 9 - Prob. 12TFQCh. 9 - Prob. 13TFQCh. 9 - Prob. 14TFQCh. 9 - Prob. 15TFQCh. 9 - Prob. 16TFQCh. 9 - Which of the following statements is true...Ch. 9 - Prob. 18MCQCh. 9 - Prob. 19MCQCh. 9 - Prob. 20MCQCh. 9 - Prob. 21MCQCh. 9 - Prob. 22MCQCh. 9 - Prob. 23MCQCh. 9 - Prob. 24MCQCh. 9 - Which of the following statements is false...Ch. 9 - Prob. 26MCQCh. 9 - Prob. 27MCQCh. 9 - Prob. 28MCQCh. 9 - Prob. 29MCQCh. 9 - Prob. 30MCQCh. 9 - Prob. 31MCQCh. 9 - Prob. 32MCQCh. 9 - Refer to Exhibit 9.1. Which accounts are relevant...Ch. 9 - Prob. 34RSCQCh. 9 - Prob. 35RSCQCh. 9 - An important task ¡n the audit of the revenue...Ch. 9 - Prob. 37RSCQCh. 9 - Prob. 38RSCQCh. 9 - Prob. 39RSCQCh. 9 - Prob. 40RSCQCh. 9 - Prob. 41RSCQCh. 9 - Prob. 42RSCQCh. 9 - Prob. 43RSCQCh. 9 - Prob. 45RSCQCh. 9 - Prob. 46RSCQCh. 9 - Prob. 47RSCQCh. 9 - Stainless Steel Specialties (SSS) is a...Ch. 9 - Prob. 49RSCQCh. 9 - Prob. 50RSCQCh. 9 - Prob. 51RSCQCh. 9 - Prob. 52RSCQCh. 9 - Prob. 53RSCQCh. 9 - Prob. 54RSCQCh. 9 - Prob. 55RSCQCh. 9 - Prob. 56RSCQCh. 9 - Prob. 57RSCQCh. 9 - Prob. 58RSCQCh. 9 - Prob. 59RSCQCh. 9 - Prob. 60RSCQCh. 9 - Prob. 61RSCQCh. 9 - Prob. 62RSCQCh. 9 - Prob. 63RSCQCh. 9 - Prob. 64RSCQCh. 9 - Prob. 65RSCQCh. 9 - Prob. 66RSCQCh. 9 - Prob. 67RSCQCh. 9 - Prob. 68RSCQCh. 9 - Prob. 69RSCQCh. 9 - Prob. 70RSCQCh. 9 - Prob. 71RSCQCh. 9 - Read the following scenario about Strang...Ch. 9 - Prob. 73RSCQCh. 9 - Prob. 74RSCQCh. 9 - ZYNGA (LO Z 3, 4, 5, 6, 8) Refer to the Why It...Ch. 9 - Prob. 76FFCh. 9 - UTSTARCOM, INC. (LO 2, 3, 4, 5, 6, 8) UTStarcom is...Ch. 9 - Prob. 78FFCh. 9 - Prob. 79FF
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- Define materiality. How does materiality come into play when assessing financial statement restatements? Other than materiality, what is the one word that might be the most distinguishing factor between ethical earnings management and unethical earnings management?arrow_forwardReported accounting earnings provide valuable information to investors, lenders and regulators. Reported income is also important for executive bonus. Yet, within the structure of GAAP, managers can use judgment in computing accounting earnings and in structuring transactions. In other words, managers can engage in earnings management. What activities need judgment in preparing the accounting earnings? What safeguards can you suggest for reducing or preventing harmful earnings management intended to mislead investors and the market?arrow_forwardEconomic consequences of accounting standard-setting means: a. standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard. b. standard-setters must ensure that no new costs are incurred when a new standard is issued. c. the objective of financial reporting should be politically motivated to ensure acceptance by the general public. d. accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.arrow_forward
- Needles talks about the use of a continuum ranging from questionable or highly conservative to fraud to assess the amount to be recorded for an estimated expense. Do you believe that the choice of an overly conservative or overly aggressive amount would reflect earnings management? Explain.arrow_forwardD1. You read that there is no generally accepted definition of ‘earnings management’. Using your accounting knowledge, your own research and textbook reading to define, describe, and analyze: When will earnings management be acceptable? When will earnings management become a fraud? Fraudulent earnings management is often identified by two adjectives. What are the two adjectives?arrow_forwardExplain the difference between earnings management and financial statement fraud.arrow_forward
- Evaluate the following statements from an ethical perspective:“Earnings management in a narrow sense is the behavior of management to play with the discretionary accrual component to determine high or low earnings.”“Earnings are potentially managed, because financial accounting standards still provide alternative methods.”arrow_forwardWhich one is not the fraudulent financial reporting? Select one: a. Cash shortage b. Lack of working capital c. Favourable industry economic condition d. Frequent changes of auditorarrow_forwardA)Differentiate between traditional reporting and Integrated reporting. B) Evaluate earnings management and identify TWO (2) techniques use in earnings management. C) Discuss what are the factors that can influence managers to practice unethical behaviour such as fraud.arrow_forward
- Any time management makes an estimate, there is the risk of earnings management or fraud. Accounting for bad debts requires management to make an estimate on the future collectability of receivables. Discuss why this could be an area at risk for earnings management.arrow_forwardManagers wishing to avoid loan covenant violations may resort to making accounting changes that increase reported earnings. True or False?arrow_forward
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