1 Problem 2 Using companies from an industry defined by 2-digit SIC codes, you estimated the following accruals regression model: Y=A+B1X1 82X2+ error, where Y is total accruals in the current year (ie., current-year income before extraordinary items minus cument-year cash flow from operations). X1 is the change in revenue from last year to the current year. and X2 is the gross amount of PP&E at the end of the current year. All of these variables are scaled by total assets at the end of last year. The analysis provided the following information: Regression Statistics Coefficients ndard Erro Stat P-value Multiple R 0.0714734 Intercept -0.029 0.019 -1.517 0.132 R Square 0.0051084 X1 0.009 0.020 0,478 0.634 Adjusted R Sq 336 X2 -0.017 0.025 -0.669 0.505 Standard Eroros99063 You also ran a model for the industry defined by 3-digit SIC codes and obtained the following: Regression Statistics Coefficients ndard Erro Stat P-value Multiple R 0.2394032 Intercept R Square 0.0573139 X1 Adjusted R Sad 362 x2 -0.056 -0.047 0.027 0.016 -3.440 0.001 0.018 -2.574 0.011 0.022 1.227 0.222 Standard Eror0751143] The company you are investigating for fraud has the following data: Income cash Total assets before flow from Revenue operations Gross PPE Receivables last year current year 21 33 1 2 2 7 20 20 -1 0 3 5 Required: (QI) Accruals are generally the easiest portion of earnings to manipulate, Why? (Q2) Is the 2-digit or 3-digit model more appropriate to use for a Discretionay Accruals analysis? Explain. (03) Using the 2-digit model, calculate Discretionary Accruals for the company being investigated. Does your analysis indicate Fraudulant Financial Reporting (FFR)? Explain. Y=A+BX BX+ error, where Y is total accruals in the current year (e, current-year income before extraordinary items minus current-year cash flow from operations), X1 is the change in revenue from last year to the current year, and X2 is the gross amount of PP&E at the end of the current year. All of these variables are scaled by total assets at the end of last year. The analysis provided the following information: Regression Statistics Multiple R 0.071473 R Square 0.005108 Adjusted R -0.01134 Intercept X1 X2 Coefficientstandard Em -0.029 0.009 Stat P-value 0.019 -1.517 0.132 0.020 0.478 0.634 -0.017 0.025 -0.669 0.505 Standard E 0.089906 You also ran a model for the industry defined by 3-digit SIC codes and obtained the following: Regression Statistics Multiple R 0.239403 R Square 0.057314 Intercept X1 Adjusted R 0.041336 X2 Coefficientstandard Em -0.056 -0.047 0.027 Stat 0.016 -3.440 0.018 -2.574 0.022 P-value 0.001 0.011 1.227 0.222 Standard E 0.075114 The company you are investigating for fraud has the following data: Income cash Total assets before flow from Revenue operations Gross PPE Receivables last year 21 33 1 current yea 20 26 -1 Required: (Q1) Accruals are generally the easiest portion of earnings to manipulate. Why? (Q2) is the 2-digit or 3-digit model more appropriate to use for a Discretionay Accruals analysis? Explain. (Q3) Using the 2-digit model, calculate Discretionary Accruals for the company being investigated. Does your analysis indicate Fraudulant Financial Reportin Using companies from an industry defined by 2-digit SIC codes, you estimated the following accruals regression model: Y=A+B1X1+ B2X2+ error. where Y is total accruals in the current year (i.e., current-year income before extraordinary items minus current-year cash flow from operations). X1 is the change in revenue from last year to the current year. and X2 is the gross amount of PP&E at the end of the current year. All of these variables are scaled by total assets at the end of last year. The analysis provided the following information: Regression Statistics Coefficients indard Erro t Stat P-value Multiple R 0.0714734 Intercept -0.029 0.019 -1.517 0.132 R Square 0.0051084 X1 0.009 0.020 0.478 0.634 Adjusted RS336 X2 -0.017 0.025 -0.669 0.505 Standard Eror0899063 You also ran a model for the industry defined by 3-digit SIC codes and obtained the following: Regression Statistics Coefficients indard Errot Stat P-value Multiple R 0.2394032 Intercept -0.056 0.016 -3.440 0.001 R Square 0.0573139 X1 -0.047 0.018 -2.574 0.011 Adjusted R Sa0d48362 X2 0.027 0.022 1.227 0.222 Standard Eror0751143 The company you are investigating for fraud has the following data: Income cash Total assets before flow from Revenue operations Gross PPE Receivables last year current year 21 33 1 2 2 7 220 26 -1 0 3 5 Required: (QI) Accruals are generally the easiest portion of earnings to manipulate. Why? (Q2) Is the 2-digit or 3-digit model more appropriate to use for a Discretionay Accruals analysis? Explain. (Q3) Using the 2-digit model, calculate Discretionary Accruals for the company being investigated. Does your analysis indicate Fraudulant Financial Reporti