Final Exam ACC 706 Questions and Correct Answers 2026

Final Exam ACC 706 Questions and Correct Answers 2026 Why do managers exploit the flexibility of GAAP? - Correct Answer To meet the expectations of the investors and what the managers benchmarks in his/her contract earnings management - Correct Answer the practice of using flexibility in accounting rules to manipulate the apparent profitability of the firm Why do managers indulge in earnings management? - Correct Answer Because managers feel they need to get to the benchmark set by management and analysts' earnings forecasts at any means. What are the popular earning managements devices? - Correct Answer big bath, cookie jar reserves, intentional errors and misstated estimates, premature or aggressive revenue recognition Big Bath Accounting - Correct Answer charges are taken in an effort to "clean up" company balance sheets, by taking excessive restructuring write-offs and overstating estimated charges for future expenditures. Cookie Jar Reserves - Correct Answer Firms sometimes put cash in separate accounts to be used in times of distress to create the illusion of growth even in bad years How are intentional errors and misstated estimates used as an earning management device? - Correct Answer by making intentional errors deemed to be "immaterial" and intentional bias in estimates What is an example of big bath restructuring charges? - Correct Answer The restructuring charges and liability reserves are sometimes reversed in future years to boost net income in those years. What is now required by FASB in regards to "Big bath charges" - Correct Answer requires that a liability must actually have been incurred before recording a liability and taking an associated restructuring charge. How does a company arrive to using cookie jar reserves? - Correct Answer •By using unrealistic assumptions to arrive at these estimated charges. •They over-reserve in good times and cut back on estimated charges, or reverse previous charges, in bad times. •A convenient income smoothing device. What is Revenue Recognition Abuses? - Correct Answer revenue may be recognized at the point in time that the economic benefits of the goods or services being sold have been transferred to the customer, so companies may recognize the revenue early or at an aggressive way to make the financials look better. What are Non-GAAP disclosures? - Correct Answer are measures of performance or financial condition that are not amounts defined by G A A P, either because the exclude certain items from, say, a measure of income, or they define an amount differently than how it is defined under G A A P What are com