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financial statement analysis
Financial Statement Analysis Workbook A Practitioners Guide 4th Edition Martin S. Fridson, Fernando Alvarez - Solutions
22. HealthSouth also propped up profits by failing to with ____________. In addition, the company when it sold assets____________ .
21. If the auditors did question an accounting entry, ____________HealthSouth executives reportedly to validate the item.
20. HealthSouth exaggerated its earnings by understating the gap between____________ and____________ .
19. The “Sarbox” provision requiring CFOs and CEOs to attest to the accuracy of financial statements gave prosecutors a powerful weapon to wield against falsifiers,____________ but dispelled any notion that the tough new law .
18. The complaint stated that when HealthSouth officials and accountants urged Scrushy , he replied, in effect,“ ____________.”
17. Flat denial by Scrushy, regardless____________ , was a consistent theme as the unfolded.
16. According to the SEC’s complaint,____________ HealthSouth’s falsification began ____________.
15. Analysts should be especially wary when ,____________ as indicated by tools such as ____________, coincides with financial reporting.
14. Off Wall Street Consulting group recommended a short sale ____________of Enron based on two factors identifiable from the financial statements, namely, and with____________ .
13. The of Enron’s was a major concern.“Ultimately they’re telling you ____________, but they’re not telling you Business Valuation Services analyst Stephen Campbell complained. “That is essentially saying ‘____________ .’”
12. Equally crude was a scheme in which Enron reportedly borrowed $500 million from a bank and____________ . A few days later it sold and repaid the bank, reporting the proceeds from the meaningless transaction as____________ .
11. While Enron grossly misled investors by , ____________a large part of its deception consisted of of basic accounting standards, with of its auditor.
10. Still, the vehicles, ____________combined with disclosures, enabled____________ Enron to make itself look less than it really was.
9. On a conference call dealing with Enron’s earnings, a____________nalyst Richard Grubman complained that the company was in refusing to include____________ a in its earnings release.
8. Excessive liberties ____________with accounting rules constituted yet one more element of____________ Enron’s misrepresentation.
7. Enron also misled investors by aggressively exploiting wiggle room in the accounting rules. The company booked revenue from its energyrelated derivatives contracts on the basis of____________ , rather than ,____________ as is the norm for .
6. When Enron at long last conceded that it was overly indebted, management tried to:a.____________ b.____________ c.____________ d.____________
5. Unexpected ____________is a classic warning sign of____________ financial misrepresentation.
4. In studying these notorious frauds, readers should pay close attention ____________, but also____________ as the validity of their stated profits is challenged.
3. The evidence of criminal misrepresentation____________ , but definitively identified some of the most famous frauds and the companies____________ .
2. Beneish finds, by statistical analysis, that the presence of any of the following five factors increases the probability of earnings manipulation:1.____________ 2.____________ 3.____________ 4.____________ 5.____________
1. Beneish defines manipulation to____________ include both and within ____________GAAP.
12. Clues to hanky-panky may include:a.____________b. ____________, and,____________ if an acquired company was a public reporter prior to its acquisition c.____________
11. Regulators may tighten up rules that can be abused, ____________such as the ____________, but corporate managers usually manage to stay one step ahead. Analysts who hope to keep pace would do well to study in order to understand the thought process of the field’s most notorious innovators.
10. There can be no guarantee of loans secured by stock issued in the combination, which would effectively____________ implicit in a bona fide____________ . of stock, and are likewise prohibited.
9. Under Securities and Exchange Commission rules, companies do not have to____________ to reflect the revenues and earnings of acquired businesses____________ .
8. For example, one M&A-related gambit entails the GAAP-sanctioned use,____________ for financial reporting purposes, of . Typically,____________ companies use this discretion to simplify the closing of their books at month- or ____________quarter-end.
7. Although the pooling-of-interests method has been abolished, M&Aaccounting remains an area____________ in which analysts must be on their toes. Companies have developed for exploiting the discretion afforded by the rules.____________ in the post-acquisition period remains a key objective.
6. Tyco’s financial reporting aggressiveness involved through a nonstandard ____________definition of the term. Tyco excluded and for its ADT____________ security-alarm business, labeling the latter .
5. The investigators concluded that Tyco repeatedly used aggressive, ____________, including immediately before acquisition, in order____________ to generate . Company officials referred to such practices as and ordered employees to “create stories” to justify .
4. Swartz acknowledged that the amount spent on was not determinable from Tyco’s financial statements because it reported and did not disclose the____________ .
3. Alert analysts had suspected something was going on behind the scenes.They questioned____________ why in the most recent fiscal year, to Tyco’s doubled to $21.6 billion even though the company reported $4.8 billion____________ .
2. Meyer emphasized that he was Tyco , but merely of . Nevertheless, the diversified manufacturer responded in the ;____________ Tyco angrily denounced Meyer’s report,____________ stating that .
1. Choosing a method of accounting for a merger or acquisition does not affect the combined companies’ subsequent or ____________. The discretionary accounting choices can have a ____________, however,____________ on ____________.
21. Given the observed gap between and in financial reporting,____________ users of financial statements must provide themselves through tough .
20. Many companies are either or____________ .Rather than laying down the law (or GAAP), the auditors typically wind up to arrive at a point ____________where they can convince themselves____________ that have been satisfied.
19. In one of the few encouraging____________ notes of recent years, the SEC has imposed a requirement on audit committee members.
18. One final line of defense for users of a company’s financial statements is ____________. This protection has ____________over the years.
17. Congress’s unwillingness to give the SEC reflected more than on____________ .
16. In WorldCom’s early days, ____________Arthur Andersen audited the company in. As the company grew, however, Andersen migrated toward____________ . If a question arose about controls or procedures, Andersen relied on the____________ .
15. In the 1990s, emerged as a means of keeping a lid on costs. Instead of focusing on ,____________ they identified the areas that in presented the greatest risk of error or fraud, such as .____________ Incredibly, these judgments in some cases were based on .____________
14. Systematic ____________problems in the audit process arise not only but also from of____________ .
13. Popular outrage over the accounting scandals created to eliminate____________ .
12. To say that____________ , however____________, is quite different from saying that a.____________ b.____________c. ____________are as good as____________ d.____________
11. Abundant evidence____________ has emerged over the years of corporate managers to paint as rosy a picture as possible.
10. Investors who relied solely on by____________ Trump World’s Fair Casino Hotel ____________were burned if they bought into the rally that followed the press release.
9. According to president and chief executive of Trump World’s Fair Casino Hotel, the firm’s focus in 1999 was threefold:a.____________ b.____________ c.____________
8. Seasoned followers of the c____________orporate scene realize that companies are not always as a____________s investors .
7. When challenged on inconsistencies in their numbers, companies sometimes ____________, rather than any intention to____________ .
6. Extremely clever scamsters may even succeed in undermining the auditors’efforts to select a procedure designed____________ to foil____________ concealment of fraud.
5.____________ is an unambiguous violation of accounting standards, but audits do not ____________.
4. It is common for____________ front-line auditors to balk at an proposed by a company’s management____________, only to be overruled by ____________.
3. At some point, ____________becomes a moral imperative, but in the real world, accounting firms must be____________ .
2. Technically, appoints the auditing firm, but is the point o____________f contact in hashing out the details of presenting financial events for____________ .
1. Fear of the consequences of breaking the law keeps corporate managers in line.____________ the law is another matter, though, in the minds of many executives. If their____________ bonuses depend on , they can usually see their way clear to adopting that course.
16. Strategist Bernstein found that by attempting to inherent in companies’ earnings,____________ investors reduced the of their stock selection.
15.____________ Merrill Lynch investment strategist Richard Bernstein points out that earnings tend to be more stable than____________ earnings, EBIT tends to be more stable than earnings, and tends to____________ be more stable than EBIT.
14. If a company resorts to stretching out its payables, two other ratios that will send out warning signals are:a.____________ b.____________
13. Aside from ____________, the amount of working capital needed to run a business represents a fairly constant of a ____________company’s sales. Therefore,____________ if inventories or receivables materially as a percentage of sales, ____________analysts should strongly suspect that the
12. Some investment managers consider____________ that the single ratio of(as they define it) to predicts____________ bankruptcy better than all of quantitative and qualitative considerations combined.
11. Beaver did not conclude that analysts should rely solely on the ____________, but merely that it was the single best .____________
10. Beaver’s definition of cash flow was more stringent than since he did not add back either or____________ to net income.
9. Depreciation is ____________not available as a long-run source of cash for. This was a lesson applicable not only to the extremely deals of the 1980s,____________ but also to the more capitalized transactions ____________of later years.
8. Delaying equipment purchases and repairs that are but not , ____________should inflict no lasting damage on the company’s provided the lasts for only a few quarters.
7. Capital spending is likely to exceed depreciation over time as the company to accommodate . ____________Another reason that capital spending may run higher than depreciation is that newly acquired equipment may be____________ than the____________ old equipment being written off, as a function of
6. Shifting investors’ attention away____________ from traditional fixed-charge coverage and toward was particularly beneficial during____________ the 1980s, when some buyouts were so that would not____________ cover pro forma interest expense even in a good year.
5. For some companies, the sum of net income, income taxes, and interest expense is not equivalent to EBIT, ____________reflecting the presence of such factors as below____________ .
4. The accounting standards leave companies considerable discretion regarding the they assign to their ____________. The same applies to amortization schedules for____________ .
3. Net income is not, to the disappointment of analysts, ____________a standard by which every company’s ____________can be compared.
2. Users of financial statements had discovered certain limitations in net income as a____________ . They observed that two companies in the same industry could report similar , ____________yet have substantially differen____________t .
1. The impetus for trying to redirect investors’ focus to or other variants has been ____________recorded by many “new economy” companies.
22. Companies can follow a variety of approaches in downplaying expenses such as:a.____________ b.____________ c.____________ d.____________
21. Freddie Mac’s____________ manipulation did not end there. Another ploy to consisted of ceasing to use____________ .
20. Even if it was true that represented the FreddieMac’s had a____________ huge impact that even could not detect .
19. Freddie Mac steadfastly that its handling of was aimed at____________ .
18. Ordinarily, a____________ company’s stock price when its reported earnings .
17. GM Management said it ____________had it was leasing to carrental companies, assuming ____________they would be more after those companies .
16. This revelation puzzled accounting experts because the applicable____________ rules were unambiguous. or fell into ____________; were included in .
15. GM said that some cash flows ____________from that should have been classified among its were instead booked as ____________.
14. At issue inGM’s restatement was and____________ from____________ .
13. are another frequently ____________abused element of ____________. General Motors’s fiddling with this device in the integrity of financial reporting.
12. An important t____________akeaway from the Nortel case is that can prove .
11. Nortel’s experience shows that if a company____________ , it will have no compunction about through ____________.
10. Nortel followed a strategy of in its money-losing period____________ of 2001–2002. created that could be taken .
9. Incorrect recognition of that amount resulted from a combination of:a.____________ b.________________________ c.________________________ d.____________
8. Nortel’s investigation,____________ which previously had focused on had turned____________ to .
7. Nortel’s management’s ____________credibility as the for producing definitive____________ .
6. In addition to dashing hopes____________ , Nortel rattled the market by firing Dunn, Beatty, ____________and Gollogly.
5. The company had to wave a with respect to by financial____________ reports.
4. Between September 2000 and Nortel’s market capitalization sank by 99%, devastating that were heavily invested in its shares____________.
3. Nortel Networks illustrated , ____________one of the most of financial ____________reporting.
2. Investors attach little significance to profits and losses____________ in valuing stocks. Therefore, a public company has a strong incentive to into a one-time event and to nonrecurring into smaller piece____________s and____________ .
1. Corporate managers are just as creative and the recognition of as they are inmaximizing and speeding up____________ .
55. When the revenues derived from fail to materialize,____________ the managers may resort to .____________ The positive mental attitude that overstates revenues in the early stage , however, than at a later point.
54. Even in the case of the bluest of the blue chips, watching for rising levels of or____________ , relative to____________ , should be standard operating procedure.
53. According to Jensen, almost ____________every company uses a budget system that employees for and punishes them ____________. He proposes reforming the system by severing the link between____________ and____________ .
52. All too often, companies wouldn’t be able to accomplish the frauds without____________ .
51. According to M____________ichael Jensen: “Tell a manager that he will get a bonus when targets are realized and two ____________things will happen”:a.____________ b.____________
50. Grace’s 1998 statement that its auditors had ____________raised no objections to its accounting ____________for the Medicare reimbursement windfall was true only that Price Waterhouse issued clean financials, based on materiality considerations. ____________As a spokeswoman for the auditing
49. Grace executives reckoned that with earnings already meeting Wall Street analysts’ forecasts,____________ a windfall the company’s stock price. Such an____________ inference would have been consistent with investors’customary that they perceive to be generated____________ by____________ .
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