Question 25

• Accruals are potentially troublesome because:
• A.They can lead to giving an unmodified audit opinion when it should have been modified
• B.They provide an opportunity to manage earnings through aggressive or more conservative estimations
• C.They always lead to fraud in financial statements
• D.They provide an opportunity to shift debt off the books by setting up an SPE

Question 26

• The main difference between a discretionary and nondiscretionary accrual is:
• A.Discretionary accruals are items that management has full control over
• B.Discretionary accruals are based on changes in the fundamental performance of the firm
• C.Discretionary accruals arise from transactions considered normal for the firm
• D.Discretionary accruals always lead to an increase in earnings