Question 1:

Which of the following parties influence whether a firm recognizes a goodwill impairment

A. Managers

B. Analysts

C. Auditors

D. All of the above

E. Managers and Auditors

Question 2:

Managers only have incentives to manage earnings upwards (not downwards).

True

False

Question 3:

Operational earnings management hurts the company because it involves making a choice about undertaking (or not undertaking) a transaction based on financial reporting considerations, that management would not otherwise choose (i.e., it's economically not the correct decision).

True

False

Question 4:

If a manager writes down equipment (within PP&E) too much (to a value lower than its actual value), which of the following will occur, holding all else equal?

A. Future revenues will be higher

B. Future earnings will be higher

C. Future expenses will be larger

D. Future cash will be higher

E. None of the above

Question 5:

If a manager records fictitious revenue, what is the most likely "debit" (remember, fictitious revenue is not the same as the acceleration of real revenues, it's making up the revenues entirely):

Debit ?

Credit Revenue

A. Cash

B. Accounts Receivable

C. Deferred Revenue

D. None of the above

Question 6:

Which of the following is the least descriptive of goodwill?

A. It is subjective and hard to value

B. It is the amount paid for an acquisition that cannot be tied to identifiable assets

C. It is always related to future benefits

D. It is most likely to be impaired when stock price is falling

Question 7:

Which of the following actions would increase net income in the current period? [All actions relate to the current year]

A. Impairing goodwill

B. Inappropriately recognizing revenue before it is earned

C. Depreciating assets too quickly (over a shorter time than the manager's best estimate)

D. None of the above.

Question 8:

Which acquisitions tend to do better in terms of future earnings and stock performance?

A. Those purchased with the company's stock

B. Those purchased with cash

C. Stock and cash acquisitions tend to perform about the same

Question 9:

Red flags are

A. An ending point, you know your firm has a problem

B. A starting point, you know you need to dig in more and investigate

Question 10:

A fraud score that exceeds ____ is a "red flag"