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Exam 11: Quality of Earnings, corporate Governance, and Ifrs

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Question 61

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Who is responsible for a company's internal controls?

A) the CEO and CFO
B) the board of directors
C) the external auditors
D) the PCAOB

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Question 62

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Which of the following is $\bold{NOT}$ one of the lessons learned from the business failures of the early 2000s?

A) Top management should set the ethical climate of a firm.
B) Overreliance on earnings per share may encourage fraudulent behavior.
C) External auditors should get to know top management well,both personally and professionally,so that they have a strong working relationship.
D) Executive compensations linked to stock performance may result in fraudulent activity.

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Question 63

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Which of the following is an indication of good corporate governance?

The audit committee is part of ________.

What is whistle-blowing?

Higher than usual earnings implies the company may be recognizing revenues early.

Match each of the following items with the appropriate description or example.Each item should be used only once.

A firm with low quality earnings may indicate the firm ________.

$\bold{\text{Team Instructions:}}$ Divide the class into teams of three or four people.Give the students time in class to work with their teammates and put together a final correct copy of the problem.Each team should turn in only one copy of the problem for grading.All team members will receive the same grade. Acme Enterprise just paid $280,000 to buy ten new company cars for its salespeople to use.Acme expects to use these cars for two or three years and then replace them. 1.If Acme uses the ten cars for three years,it then expects to be able to sell them for $10,000 each.How much depreciation expense will Acme record each year using the straight-line method? 2.If Acme uses the ten cars for only two years,it then expects to be able to sell them for $12,000 each.How much depreciation expense will Acme record each year using the straight-line method? 3.If Acme has 1,000,000 weighted-average shares of common stock outstanding,how much difference will the choice of useful life make in the company's earnings per share? 4.Which useful life would be considered aggressive? 5.Which useful life would improve the quality of Acme's earnings? 6.Explain the relationship between management's choice of accounting method and a company's quality of earnings.

Which of the following is an indication of good corporate governance?

This year Ace Electronics tried calculating its bad debts expense two different ways.Using a percentage of credit sales,bad debts expense would be $1,500.Based on an aging of accounts receivable,however,bad debts expense would be only $1,200.If Ace decides to report $1,500 of bad debts expense,this accounting choice would be considered ________.

Firms that choose larger salvage values for their depreciable assets often have higher quality of earnings.

Describe how U.S.GAAP differ from IFRS in the way inventory may be recorded.

Firms that recognize revenue early or postpone recognition of expenses often have a lower quality of earnings.

Which of the following is a new requirement imposed by the SOX Act?

Tim's Tams donated 100 baseball caps to the local homeless shelter.The company will record the donation as an operating expense.The caps cost Tim's Tams $2.00 each and the company usually sells them for $8.50.If Tim's Tams reports a charity expense of $850,this accounting choice would be considered ________.

This year Ace Electronics tried calculating its bad debts expense two different ways.Using a percentage of credit sales,bad debts expense would be $1,500.Based on an aging of accounts receivable,however,bad debts expense would be only $1,200.If Ace decides to report $1,200 of bad debts expense,this accounting choice would be considered ________.

The cookie-jar-reserve theory is the type of manipulation where management maximizes a current loss to get rid of expenses that belong on future income statements.

Three Thugs,Inc.opened a new auto repair shop this year.The owners have decided not to recognize any bad debts expense or allowance for uncollectible accounts because they think that their company name will be enough to enforce collection.This accounting choice would be considered ________.

IFRS ________.