The Client May Use a Variety of Methods to Understate

question 55

Multiple Choice

The client may use a variety of methods to understate liabilities,interest expense and long-term debt.These include

• A)Recording operating leases as capital leases to avoid putting the liability on the balance sheet.
• B)Failing to record interest expense.
• C)Changing the interest rate used to capitalize long-term liabilities to vary the amount of interest expense
• D)Failing to disclose special arrangements,such as transactions with special purpose entities.
• E)Forward dating stock options and failing to record compensation expense for the difference between the market price of the stock at the date of the grant and the price of the stock on the date of the backdating.
• F)both A and B
• G)both B and C
• H)both D and E

Understand the principles of liquidity and how it impacts a firm's financial flexibility.

Comprehend the short-term financial obligations of a firm as indicated by current liabilities.

Familiarity with GAAP and IFRS accounting principles and their implications for financial reporting.

Understand non-cash items in financial statements and their impact on a company’s financial performance.

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Definitions:

Measurable

Able to be measured or represented using numbers.

Assess

To assess or determine the characteristics, capacity, or value of something.

Intangible Activities

Activities or services that offer value but do not result in the ownership of physical goods.

Organization

An entity comprising multiple people structured in a specific way to achieve a collection of goals or objectives.