None Which statement below is not correct with respect toearnings management?Multiple Choice•••It is increasingly common because of the pressureto meet analysts' expectations.More firms just beat rather than just miss theanalyst expectations.In a recent survey, more than 65% of CFOssurveyed indicated that reporting a profit is animportant benchmark.In a recent survey, more than 80% of CFOSsurveyed indicated that meeting or beatingconsensus EPS is an important benchmark.

To determine which statement is not correct with respect to earnings management, let's analyze each…

Answered: Which statement below is not correct…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter6: Audit Evidence

Section: Chapter Questions

Problem 17RQSC

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Using the data in the following table for a number of firms in the same industry, dothe following:•a. Compute the total asset turnover, the net profit margin, the equity multiplier, andthe return on equity for each firm.b. Evaluate each firm’s performance by comparing the firms with one another.Which firm or firms appear to be having problems? What corrective actionwould you suggest the poorer performing firms take? Finally, what additional data would you want to have on hand when conducting youranalyses?Firm (in million Dollars A B C D Sales $20 $10 $15 $25 Net Income after sales 3 0.5 2.25 3 Total Assets 15 7.5 15 24 Stockholders’ Equity 10 5 14 10
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Which of the following items is consistent with earnings being informative about current performance and informing the analyst that the level of current earnings is sustainable? A The firm recognizes an unexpected gain. B The firm recognizes a fair value gain on a financial asset as a result of a favorable move in interest rates. The firm recognizes additional expenses this period due to pre-opening costs associated with new stores. The firm experiences a large jump in sales and earnings as a result of successful research and development of new products.
While being in different industries, two companies have the same expected earnings per share and the same standard deviation of expected EPS. As a result, the two businesses would face the same business risk. * Correct O Wrong
The AFN equation provides useful insights into the forecasting process, but this equation assumes that all of the firm's key ratios remain constant, which is not likely to hold true. Consequently, it is useful to forecast the firm's financial statements. The firm begins with forecasting its |-Select- V which then feeds into the firm's balance sheet. Management looks at operating ratios and their relationship with industry and benchmark averages. The forecasted income statement begins with the prior year's income statement and is adjusted for the sales growth forecast. Some inputs for the income statement are not under the firm's control - for example, tax and interest rates. The forecasted balance sheet is calculated from asset ratios that management has reviewed and changed based on industry and benchmark averages. An Excel spreadsheet is used for this analysis because changes in assumptions, financing, and ratios can be made to the statements to review alternative scenarios. The…
When converting dollar amounts on our financial statements to percentages for vertical analysis, what is it that makes this an easier way to compare companies to each other? A It provides a way for outside stakeholders to understand the numbers better in an easier format B It forces us to look closer at our financial statements to ensure we don't have missing amounts C It allows us to compare things based on growth or decline easier than comparing dollar amounts that could be vastly different values D It allows the analysis of numbers too large to comprehend by most stakeholders
The ratio, Days Sales Outstanding (DSO) measures how quickly a company pays its vendors and suppliers. Select one: True False A company is using the same financial ratios to measure their performance across multiple divisions which are in different industry. This approach provides the company with the most accurate trend analysis. Select one: True False Examples of financial leverage include all of the below except for (select the one that does not apply): a. Issuing stock b. Equipment Loan c. Working Capital Line of Credit d. Business Credit Card e. A private loan from family which must be repaid
7. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will increase. Based on your understanding of the uses and limitations of ROE, which of the following projects will a manager likely choose if his or her bonus is solely based on the ROE of the next project? O Project Y, with 40% ROE and a small investment, generating low expected cash flows O Project X, with 35% ROE and a large investment, generating high expected cash flows Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a trend analysis, you would: O Analyze the firm's financial ratios over time Compare…
A trend analysis indicates a firm's performance ____. a.over time b.more accurately than any other type of analysis c.at one given point in time d.without relying on financial ratios
The chapter encourages analysts to develop forecasts that are realistic, objective, and unbiased. Some firms managers tend to be optimistic. Some accounting principles tend to be conservative. Describe the different risks and incentives that managers, accountants, and analysts face. Explain how these different risks and incentives lead managers, accountants, and analysts to different biases when predicting uncertain outcomes.
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