Reading 27: Accounting Shenanigans on the Cash Flow Stateme

答案和详解如下：

6.Page is looking for any possible indication of fraud in Best Made’s financial statements. Which of the following is considered to be the most common earnings manipulation technique used by companies?

A)   Utilizing different growth rates of operating cash flows and earnings.

B)   Recognizing revenue too soon.

C)   Abnormal inventory growth as compared to sales growth.

D)   Abnormal sales growth as compared to the economy, industry or peers.

The correct answer was B)    

Typically, revenue is recognized in the income statement when earned and payment is assured. Aggressively recognizing revenue before the appropriate time is the most common earnings technique. It can be done in numerous ways, such as recognizing revenue before goods or services are actually delivered.

7.Page observes in Best Made’s financial statements that for the past three years, the company has sold more inventory than it produced. Best Made is most likely attempting to manipulate its reported earnings by utilizing which of the following methods?

A)   Creating “cookie jar” reserves.

B)   Utilizing LIFO liquidations.

C)   Delaying expense recognition.

D)   Extending the useful live of long-term assets used in production.

The correct answer was B)

Under the LIFO inventory method, when a firm sells more inventory than it produces, it will in effect lower its cost of goods sold by matching current sales with older, lower cost inventory. The increased profit is not sustainable because the firm will eventually liquidate its entire inventory.

8.With regards to SAS No. 99 and the “fraud triangle”, which of the following statements regarding the conditions that may lead to fraudulent financial reporting is most accurate?

A)   An opportunity to commit financial statement fraud when there is a company mindset that fraudulent behavior is justified.

B)   Management’s obsession with maintaining or increasing the company’s stock price can result in the opportunity to commit financial statement fraud.

C)   There is often pressure to commit financial statement fraud when there is a weakness in the company’s internal control system.

D)   Both external and internal incentives and pressures are the motives that lead management to commit financial statement fraud.

The correct answer was D)

Incentive or pressure, opportunity and attitudes or rationalization are the three corners of the fraud triangle. Incentive or pressure can come from one of many sources, and is the motive that exists to commit fraud.

9.The nature of a firm’s industry or operations can lead to the existence of opportunities to commit fraud. Which of the following risk factors are related to opportunities to commit fraud?

A)   Management being dominated by a single person or small group.

B)   Significant related party transactions, especially when those parties are audited by another firm.

C)   Ineffective oversight by the board of directors or audit committee.

D)   Organizational structure that involves unusual legal entities or unusual lines of authority.

The correct answer was B)

The only risk factor that relates to a company’s industry or operations is the presence of a significant level of related party transactions. The other three risk factors are related to ineffective management monitoring or a complex or unstable organizational structure.