If a company uses a non-GAAP financial measure in an SEC filing, then the company must:
Provide a reconciliation of the non-GAAP measure and equivalent GAAP measure
An audit opinion of a company’s financial reports is most likely intended to:
Assure that financial information is presented fairly
Which of the following is most likely to reflect conservative accounting choices?
Increased debt reported on the balance sheet at the end of the current period
An analyst reviewing a firm with a large reported restructuring charge to earnings should:
Consider making pro forma adjustments to prior years’ earnings.
Which of the following is an indication that a company may be recognizing revenue prematurely? Relative to its competitors, the company’s:
Days sales outstanding (DSO) is increasing.
In contrast to earnings quality, financial reporting quality most likely pertains to:
Relevant information.
The information provided by a low-quality financial report will most likely:
Impede the assessment of earnings quality.
When earnings are increased by deferring research and development (R&D) investments until the next reporting period, this choice is considered:
Earnings management as a result of a real action.
Low quality earnings most likely reflect:
Company activities which are unsustainable
Bias in revenue recognition would least likely be suspected if:
Reported revenue is higher than the previous quarter.
A company is experiencing a period of strong financial performance. In order to increase the likelihood of exceeding analysts’ earnings forecasts in the next reporting period, the company would most likely undertake accounting choices for the period under review that:
Accelerate expense recognition.
Which of the following conditions best explains why a company’s manager would obtain legal, accounting, and board level approval prior to issuing low-quality financial reports?
Rationalization
Which of the following situations represents a motivation, rather than an opportunity, to issue low-quality financial reports?
Search for a personal bonus
If a particular accounting choice is considered aggressive in nature, then the financial performance for the reporting period would most likely:
Exhibit an upward bias.
Which technique most likely increases the cash flow provided by operations?
Stretching the accounts payable credit period
A company wishing to increase earnings in the reporting period may choose to:
Lower estimates of uncollectible accounts receivables.
Which of the following concerns would most likely motivate a manager to make conservative accounting choices? (A) Attention to future career opportunities, (B) Expected weakening in the business environment, (C) Debt covenant violation risk in the current period.
Expected weakening in the business environment
Which of the following situations will most likely motivate managers to inflate reported earnings?
Possibility of bond covenant violation.
Which of the following would most likely signal that a company may be using aggressive accrual accounting policies to shift current expenses to later periods? Over the last five year period, the ratio of cash flow to net income has:
Decreased each year.
Financial reports of the lowest level of quality reflect:
Fictitious events.
Which attribute of financial reports would most likely be evaluated as optimal in the financial reporting spectrum?
Sustainable and adequate returns.
A high-quality financial report may reflect:
Low earnings quality.
Which of the following is most likely to be considered a potential benefit of accounting conservatism?
A reduction in litigation costs.
Earnings that result from non-recurring activities most likely indicate:
Lower-quality earnings.
