EARNINGS MANAGEMENT
Surveys show that, when choosing between 1) accounting policy manipulation and 2) operating decision manipulation, practitioners believe this category of earnings management is more acceptable.
WHAT IS OPERATING DECISION MANIPULATION?
During an audit, this term describes the analytical process used to identify potential manipulation by comparing financial data across periods.
WHAT IS HORIZONTAL ANALYSIS?
If an auditor discovers that a management-level employee commits an illegal act, the auditor must report that act to this individual or group of individuals.
WHAT IS AUDIT COMMITTEE?
This entity requires all public companies to have an independent auditor’s report in annual financial statements.
WHAT IS THE SECURITIES & EXCHANGE COMMISSION (SEC)?
This phrase refers to a situation where the interests of two different parties are incompatible.
WHAT IS CONFLICT OF INTEREST?
This term describes a type of accruals that managers have control over and may more easily use to manipulate earnings.
WHAT ARE DISCRETIONARY ACCRUALS?
This term means to present the true economic substance of transactions, rather than just following the ‘letter of the law’.
WHAT IS REPRESENTATIONAL FAITHFULNESS?
This component of the fraud triangle refers to the circumstances that allow fraud to occur, or ‘open the door’ to fraud.
WHAT IS OPPORTUNITY?
This entity oversees the audits of nonpublic companies.
WHAT IS THE AICPA’S AUDITING STANDARDS BOARD(ASB)?
*JUST AICPA WILL BE ACCEPTED
"When analyzing financial health, these are calculated to evaluate performance, liquidity, solvency and similar metrics by examining relationships between key financial statement items over time or against industry benchmarks."
WHAT ARE RATIOS?
This metric, derived from the financial statements, is typically the most important benchmark for company management and it may be compared to results from the prior year and other accounting periods.
WHAT IS EARNINGS PER SHARE (EPS)?
In a survey of 375 CFOs, the two indicators of high-quality earnings include 1) were consistent reporting choices through time and 2) this.
WHAT IS THE ABSENCE OF LONG-TERM ESTIMATES?
This component of the fraud triangle relates to the attitudes one adopts in order to justify fraud.
WHAT IS RATIONALIZATION?
When an auditor is unable to issue an opinion for whatever reason, they will do this.
WHAT IS DISCLAIM (AN OPINION)?
This theoretical model describes the three conditions (or categories) that are generally present / required for fraud to occur.
WHAT IS THE FRAUD TRIANGLE?
This term describes setting aside reserves in profitable years to cover losses in future years, a common technique of earnings management used in order to smooth income.
WHAT IS COOKIE JAR ACCOUNTING?
Earnings management can be carried out in two ways – via changes in 1) accounting policies and 2) this.
WHAT ARE REAL ACTIONS
(OR OPERATIONAL DECISION MANIPULATION)
“Everyone else is doing it” is an example of this.
This type of opinion is issued when financial statements are ‘clean’, or prepared in accordance with GAAP without any significant issues of note (PCAOB).
WHAT IS UNQUALIFIED?
Auditing standards (AUC-240) require that auditors perform this, which includes leveraging the fraud triangle to understand the potential for fraud within the company, assessing the likelihood and significance of potential fraud, and modifying audit procedures accordingly.
WHAT IS FRAUD RISK ASSESSMENT?
This deceptive practice involves taking large write-offs in a single period to pave the way for future profitability.
WHAT IS TAKING A “BIG BATH“?
This controversial financial practice involves presenting metrics like EBITDA, which do not comply with GAAP and may give a distorted view of financial health
WHAT IS NON-GAAP REPORTING?
Ineffective internal controls or monitoring by management are related to this side of the fraud triangle.
WHAT IS A OPPORTUNITY?
If significant conflict exists with management or the auditor decides that management cannot be trusted, then this may be justified.
WHAT IS WITHDRAW FROM THE ENGAGEMENT?
Auditing standards require that this is a presumed fraud risk.
WHAT IS IMPROPER REVENUE RECOGNITION?