GT FAFI-2

Which ratio signifies a potential warning sign of aggressive revenue recognition or financial misrepresentation in Exotic Living Limited's recent financial performance?

• Net Profit Margin
• Days Receivable
• Current Ratio
• Depreciation to PPE Ratio

Which accounting method records revenues when earned and expenses when incurred, regardless of cash flow?

• Cash-basis Accounting
• Double-entry Accounting
• Accrual-basis Accounting
• Debit and Credit Accounting

Which of the following is not a type of timing scheme?

• Misclassification schemes
• Improper estimates of revenue recognition period
• Shipping schemes
• Percentage of completion schemes

What happens when there is an exceptionally large sale made to an existing customer, typically a distributor?

• Misrepresentation of the revenue recognition period
• Bill and hold schemes
• Multiple-element revenue recognition schemes
• Channel stuffing

Which of the following characteristics does not suggest that a recorded sale is a consignment transaction?

• The seller requires payment only after the goods have been resold
• The buyer is financed by the seller directly or through guarantees
• The buyer has a relatively unlimited right of return
• The seller is a related party

Which analysis method involves taking every item in the income statement as a percentage of revenue?

• Horizontal Analysis
• Ratio Analysis
• Vertical Analysis
• Dynamic Analysis

What does 'cookie jar accounting' involve?

• Creating reserves during good years to use in bad years
• Recording all revenue when cash is received
• Overstating liabilities in financial statements
• Misclassifying short-term assets as long-term

What is the primary reason financial statement fraud is committed?

• To follow regulatory requirements
• To meet analyst expectations and stock market targets
• To improve internal controls
• To simplify financial reporting

An accountant adjusts the estimated useful life of a company's assets to a longer period than usual in order to:

• Recognizing revenue early
• Inflate profits
• Deflate profits
• Double entry system , no impact

During an audit, it was discovered that a company did not disclose a significant pending lawsuit in its financial statements.

• Overstating revenue
• Misclassifying expenses
• Improper disclosure
• Recognizing liabilities early