QUESTION 1

Which of the following is NOT an example of earnings management?

A. Misstatement to overvalue share prices
B. Tendency of analysts to provide operating cash flow forecasts as well as earnings forecasts
C. Frequent recording of excessive provisions for low-persistence special items
D. Managers report more income-increasing accruals

QUESTION 6

Which of the following was a result from the article?

A. High-accrual constrained firms raise more equity and debt financing than low-accrual constrained firms
B. Low-accrual constrained firms raise more equity and debt financing than high-accrual constrained firms
C. Constrained firms that manage accruals don’t invest in projects that lead to improved firm performance
D. A & C
E. None of the above

QUESTION 4

Which of the following is false regarding the studies related to earnings management and market efficiency?

A. special items excluded from GAAP net income have influence effects on operating cash flows
B. Investors look at useful information when looking at pro-forma earnings
C. earnings management policies make little sense if securities markets are efficient
D. None of the above

QUESTION 3

Which of the following statements regarding blocked communication are FALSE?
A. The principal has an incentive to try and minimize blocked communication
B. If the agent neglects to consider some important information, efficiency of agent contracts can decrease
C. The superior expertise of the agent can make it costly to communicate information to the principal
D. Earnings management cannot reduce blockage
E. None of the above

QUESTION 5

Which of the following is NOT a pattern of earnings management?

A. Taking the Bath
B. Earning Manipulation
C. Earning Maximization
D. Earning Smoothing

QUESTION 7

Which of the following are true about the Linck, Netter, & Shu Article?

A. Constrained firms with good investment opportunities have zero discretionary accruals than their unconstrained counterparts
B. Constrained firms with good investment opportunities have lower discretionary accruals than their unconstrained counterparts
C. Constrained firms with good investment opportunities have higher discretionary accruals than their unconstrained counterparts
D. None of the above

QUESTION 2

Which statement is true regarding the Healy’s study?

A. Managers are tend to increase the earnings when income is lower than bogey.
B. When the income is in between the reward bogey and cap, managers usually don’t attempt to manage the earnings.
C. Discretionary accruals are measured by a regression model.
D. Managers have incentive to decrease the earnings when income is higher than cap.