Deck 8: Current Issues in Financial Reporting

Question 1

Which of the following is not a measure to improve auditor independence?

A) Audit fees set by an independent body
B) Prohibit senior audit rotation, to enable auditors to work more closely with management
C) Prohibit auditors from undertaking non-audit services for their clients
D) Auditors appointed by independent body

Answer 1

B

Question 2

Which of the following would be an appropriate approach to detecting questionable accounting treatment?

A) Compare the amount of tax a company pays with their reported profit figures
B) Compare the company's asset with their liabilities
C) Compare the company's dividend yield with their P/E ratio
D) Compare the company's share price with their reported profit

Answer 2

A

Question 3

Which of the following statements is true regarding the treatment for research and development (R & D)expenditure as stipulated in IAS 38?

A) Research expenditure should be written off as it occurs
B) Development expenditure should be recognized as an internally generated intangible asset
C) Development expenditure can be carried forward on the balance sheet if certain criteria can be demonstrated (such as, the project is technically feasible and that when it is completed can be used or sold)
D) All of the above

Answer 3

D

Question 4

According to IAS 37 (provisions,contingent liabilities and contingent assets)for a provision to be recognized there must be:

A) A proven outflow of economic resources which has been independently valued
B) A probable outflow of economic resources which has been independently valued
C) A probable outflow of economic resources of which a reliable estimate can be made
D) A definite outflow of economic resources of which an accurate valuation can be made

Question 5

Creative accounting is sometimes used to:

A) Reduce reported losses
B) Manipulate accounting ratios
C) Make management look successful
D) All of the above

Question 6

Creative accounting is not only concerned with maximizing profit and may include income smoothing which may require understating profits

Question 7

Which of the following statements would normally be associated with a "left wing" proposal to curtail creative accounting practice?

A) Remove legislation and public involvement in company accounting
B) Develop more rigorous legislation and public involvement in company accounting
C) Develop more rigorous regulation and public involvement in audit practice
D) Statements B & C are both correct

Question 8

Managers who want to manipulate accounts to make return on capital employed (ROCE)look more favorable are likely to take which of the following courses of action?

A) Find ways to reduce asset values
B) Find ways to boost profit and increase asset values
C) Find ways to increase asset values
D) Find ways to increase capital employed

Question 9

Which of the following statements about The Corporate Report (1975)is false?

A) The Corporate Report recommended a statement of value-added
B) The Corporate Report recommended an employment report
C) The Corporate Report recommended a Corporate Social Responsibility report
D) The Corporate Report recommended a statement of future objectives

Question 10

Depreciation and inventories of unsold goods are areas of financial accounting where the accounting rules allow little flexibility,and there is little scope for personal judgment or manipulation

Question 11

Which of the following statements is correct?

A) Some social and environmental reports are simply "glossy" public relations exercises
B) Social and environmental reporting practice varies enormously
C) Social and environmental reporting is at an early stage in its development
D) All of the above statements are correct

Question 12

Which of the following statements is correct?

A) Companies are required to publish their carbon footprint in their annual report
B) Companies are free to publish whatever environmental information they like in their annual reports
C) Companies are required to publish their recycling policies in their annual report
D) Companies are required to publish their supply chain policies in the annual report

Question 13

Which of the following statements would normally be associated with a "right wing" proposal to curtail creative accounting practice?

A) Remove legislation and public involvement in company accounting
B) Develop more rigorous legislation and public involvement in company accounting
C) Develop more rigorous regulation and public involvement in audit practice
D) Statements B & C are both correct

Question 14

Which of the following statements is false?

A) Social and environmental accounting is concerned with reporting relevant and measurable social costs and benefits to shareholders and creditors
B) Social and environmental accounting is concerned with organizations being more widely accountable for social and environmental issues
C) Social and environmental accounting involves disclosing information in addition to to conventional financial accounting statements
D) Social and environmental accounting is concerned with organizations being more widely accountable to interest groups other than shareholders and creditors

Question 15

A company can reduce its reported salary expense by paying some employees with share options instead of money

Question 16

It is easier to generate "fictitious" cash flow figures than to produce "fictitious" profit figures

Question 17

Which of the following statements is false?

A) One approach to curtailing creative accounting is to have stronger legal backing for accounting standards
B) One approach to curtailing creative accounting is to move away from cash flow accounting to providing more accruals based information
C) One approach to curtailing creative accounting is to enhance the role of international accounting standards
D) One approach to curtailing creative accounting is to move towards a current cost accounting approach to asset valuation

Question 18

In what way has IFRS 3 made accounting for goodwill open to manipulation by managers?

A) Requires goodwill to be treated as an expense on the income statement
B) Requires goodwill to be treated as a one-off gain in the income statement
C) Requires goodwill to be subject to an annual impairment review
D) Requires goodwill to be treated as an asset on the balance sheet and amortized

Question 19

According to the Centre for Social and Environmental Accounting Research (CSEAR),which of the following is not an aspect of social reporting?

A) Investigating the social effects of current accounting practice
B) Investigating how to ameliorate the adverse affects of accounting practice
C) Reporting political and charitable donations
D) Studying other possible ways of providing accounts of organizations

Question 20

The term "creative accounting" is used to describe the development of accounting techniques which more accurately reflect the economic reality of a company

Question 21

"Creative Accounting" may be used to:
(i)Manipulate profits - boosting them to increase share prices,or "smoothing" profits to show similar amounts year on year.
(ii)Manipulate ratios - key ratios that investors use can be manipulated to show a better position

A) Statement (i) is true and (ii) is false
B) Statement (i) is false and (ii) is true
C) Both statements are true
D) Both statements are false

Question 22

"Ethics" and an "Ethics Policy Statement" drawn up by the company must follow which rules in the UK?

A) There are no RULES, merely guidelines set out in the Corporate Social Responsibility Code
B) There are strict rules and legislation laid out in the Corporate Social Responsibility Code
C) There are legal requirements laid out in the Sarbanes-Oxely Act
D) There are no RULES, but there are guidelines set out in the Sarbanes-Oxely Act

Question 23

If a company leases an asset instead of buying it,should it show the asset on the Statement of Financial Position?

A) No. The lease payments are shown as an expense on the Income Statement.
B) Yes, but only if it was sold and then leased back.
C) Yes, if the company is using the asset as if it was its own
D) No. The asset remains the property of the lessor

Question 24

When auditors audit the company,what are they looking for with regards to fraud?

A) The auditors systematically search for any fraudulent activity across the whole company
B) Auditors will compare company profits to company tax payments
C) Auditors look for fraudulent activity not only of the company they audit, but suppliers, customers and employee activity is also investigated
D) The auditors are not responsible for detecting all fraud in the company

Question 25

Can a company hold a "provision","just in case" of an emergency?

A) No. "Just in case" is not a good enough reason
B) Yes. In fact provisions are an essential part of "prudence"
C) No. Provisions can never be held
D) Yes. Companies have an obligation to build provisions for all sorts of scenarios