Prior to the Introduction of Impairment Testing Companies Had Attempted

question 4

Multiple Choice

Prior to the introduction of impairment testing companies had attempted to manipulate their financial statements through amortisation:

• A)because where managers were rewarded based on profits attained it was in their best interests to reduce expenses while they held that position.
• B)because contractual arrangements such as debt covenants often required asset values to be maximised.
• C)because recording higher amortisation expenses allowed profits to be reduced, thus allowing tax payments to be minimised without any cash outflows.
• D)because where managers were rewarded based on profits attained it was in their best interests to reduce expenses while they held that position and because contractual arrangements such as debt covenants often required asset values to be maximised.

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Definitions:

Test Statistic

A calculated value used in statistical hypothesis testing to determine whether to reject the null hypothesis.

Chi-Square Test

A statistical test used to determine whether there is a significant association between two categorical variables.

Independence

A concept in probability and statistics indicating that two events or variables have no association or influence on each other.

Categorical Variables

Variables that represent categories and can take on a limited, and usually fixed, number of possible values.