Accruals Are Potentially Troublesome Because

question 7

Multiple Choice

Accruals are potentially troublesome because:

• A) They can lead to giving an unmodified audit opinion when it should have been modified
• B) They provide an opportunity to manage earnings through aggressive or more conservative estimations
• C) They always lead to fraud in financial statements
• D) They provide an opportunity to shift debt off the books by setting up an SPE

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Definitions:

Prevention Costs

Costs that are incurred to keep defects from occurring.

Internal Failure Costs

Costs associated with defects found before the delivery of a product to the customer, including scrap, rework, and downtime.

External Failure Costs

Costs that occur when products fail to meet quality standards after being delivered to customers, including returns, repairs, and warranty claims.

Opportunity Costs

The financial impact of skipping the immediate next favorable choice in the process of making a decision.