QUESTION 9

Which of the following statements about the process of forecasting a firms pro forma Financial Statements is NOT true?

1. If a firm wishes to grow at a rate in excess of its sustainable growth rate, g*, its only option is to raise additional external financing

2. In the ideal, year-by-year forecasts should be made up until the point in time when the firm reaches a steady state growth rate

3. The focus of the forecasting process should be on the firms sustainable (core) earnings

4. A firms sustainable growth rate is based on its current level of profitability and its current dividend policy

QUESTION 8

Which of the following statements is TRUE?

1. Earnings management (EM) is less likely when the firm has been experiencing constant or falling sales

2. Earnings management (EM) is less likely when there has been a change in accounting principles or estimates

3. Earnings management (EM) is less likely when the financial reports are used solely for reporting purposes and not for other purposes

4. Earnings management (EM) is less likely when the firms governance structure is weak

QUESTION 7

Which of the following would be a 'red flag' that a company might be overstating its operating accruals to inflate earnings?

1. An unusual increase in financial obligations

2. An unusual increase in the provision for employee benefits

3. An unusual decrease in deferred revenue

4. An unusual increase in the provision for doubtful debts