Which of the following is NOT an example of an accounting-based earnings management (EM) strategy designed to increase reported earnings?

1. Increasing the discount rate used to estimate the pension liability

2. Overestimating the amount of expenses that are prepaid

3. Delaying the disposal of obsolete inventory

4. Failing to write down obsolete inventory

QUESTION 5

Which of the following statements about a rules-based versus principles-based approach to setting accounting standards is NOT true?

1. A principles-based approach allows management to use accounting policy choice as a means of communication

2. A rules-based approach provides companies with guidance on how they should they should account for various items and situations

3. A principles-based approach provides management with the flexibility to exercise judgement

4. A rules-based approach provides a relatively more limited scope for earnings management (EM) activity to occur

QUESTION 2

Having made its required interest payments, which of the following is NOT an alternative the firm has for using its remaining free cash flow (FCF) determined in the reformulated Statement of Cash Flows?

1. Purchase of short-term investments

2. Repurchase of common shares

3. Payment of dividends

4. Purchase of a subsidiary

A rules-based approach provides a relatively more limited scope for earnings management (EM) activity to occur