Deck 8: Perform the Analysis: Predictive Analytics

Question 1

Predicting the possible existence of fraud is a classification predictive analysis.

Answer 1

True

Question 2

According to the text, __________ does not prefer __________-basis accounting since it is inferior at forecasting future performance.

A) GAAP, cash
B) GAAP, accrual
C) tax accounting, cash
D) tax accounting, accrual

Answer 2

A

Question 3

According to Altman's Z, the __________ amount of long-term profitability generally leads to __________ risk of bankruptcy.

A) greater; greater
B) greater; lower
C) lesser; lower
D) lesser; no

Answer 3

B

Question 4

We would expect a positive (+) relationship between loan acceptance and employment length.

Question 5

The balance in the cash account is deterministic as compared to being probabilistic.

Question 6

Predicting whether financial statements are fraudulent or not is an example of classification.

Question 7

All of the following are factors used by Altman's Z in predicting bankruptcy except:

A) Working capital/Total assets
B) Market value of stockholders' equity/Book value of total debt owed
C) Retained Earnings/Total assets
D) Income/Total equity

Question 8

Which predictive analytics technique would be used to predict whether a firm is likely to have a material misstatement in the coming year?

A) Regression
B) Classification
C) Benford's law
D) Monetary unit sampling

Question 9

The higher the expected risk, the lower the expected return.

Question 10

Which predictive analytics technique would be used to predict the interest rate given from a lender (bank) to a borrower?

A) Regression
B) Cross-tabulation
C) Looking for anomalies and outliers
D) Time-series analysis

Question 11

Predicting whether it will rain tomorrow or next week is more deterministic than reporting the rain that happened yesterday.

Question 12

A good first step in a bankruptcy prediction is to know how many companies go bankrupt each year (as a percentage of total firms) to understand how prevalent bankruptcy is as a whole.

Question 13

If a company has an Altman Z-score of 1.7, the company would be classified in the __________.

A) distress zone, or at significant risk of bankruptcy
B) gray zone, or at risk of bankruptcy
C) safe zone, not currently at risk of bankruptcy
D) green zone, no risk of bankruptcy

Question 14

If a company has an Altman Z-score of 3.1, the company would be classified in the __________.

A) distress zone, or at significant risk of bankruptcy
B) gray zone, or at risk of bankruptcy
C) safe zone, not currently at risk of bankruptcy
D) green zone, no risk of bankruptcy

Question 15

The persistence of operating income as compared to cash flows from operations is consistent with GAAP requiring the use of __________ accounting for financial reporting purposes.

A) cash-basis
B) accrual-basis
C) tax-basis
D) cost-basis

Question 16

Increase in receivables as compared to last period is a factor predicting financial statement fraud.

Question 17

Which is more persistent in predicting future amounts of the variable based on current amounts of that same variable?

A) Sales
B) Cash flows from investment activities
C) Operating income
D) Cash flows from financing activities

Question 18

Predicting which companies are likely to have misstated financial statements is an example of __________ in predictive analytics.

A) classification
B) prediction
C) regression
D) time series analysis

Question 19

We would expect a positive relationship (+) between loan acceptance and the debt-to-income ratio.

Question 20

We would expect that sales forecasts would be more accurate than forecasts of operating income.

Question 21

__________ is the situation when the prediction places too little weight on the base rates of the past and instead uses different or new, recently received information.

A) Base rates
B) Historical rate fallacy
C) Base rate fallacy
D) Historical rate

Question 22

Forecasting earnings is an example of which type of predictive analytics?

A) classification
B) regression
C) time series
D) variance analysis

Question 23

An assessment by the auditor if the company has the resources needed to operate for the foreseeable future is called __________.

A) bankruptcy assessment
B) going concern
C) customer assessment
D) creditworthy

Question 24

Predictive and prescriptive analytics provide __________ deterministic output and __________ probabilistic models (judging the likelihood (probability) of a future event or outcome occurring) as compared to descriptive and diagnostic analytics.

A) less; more
B) more; more
C) more; less
D) less; less

Question 25

What would be a possible independent variable in a regression determining "How do lenders set interest rates paid by borrowers?" at a lender?

A) Interest rate charged/paid to borrower
B) Borrower credit history
C) Borrower salary
D) Borrower debt

Question 26

The probability of some event occurring based on some historical average is called __________.

A) base rates
B) historical rate
C) sample average
D) classification

Question 27

What would be the dependent variable in a regression determining "How are firm costs dependent on the level of production?" at a decking company?

A) Total production costs
B) Board feet
C) Type of board manufactured
D) Total production revenue

Question 28

__________ is a statistic that evaluates a customer's creditworthiness and ability to repay a loan.

A) Credit score
B) Customer score
C) Going concern
D) Loan repayment score

Question 29

Using past performance to predict future performance is called __________.

A) regression
B) classification
C) time series
D) forecasting

Question 30

__________ is the ability of a computer (or machine) to automatically learn on its own without being explicitly programmed to do so.

A) Robotic process automation
B) Machine learning
C) Automated learning
D) Computerized learning

Question 31

Predicting whether a company will need to restate its financial statements is an example of __________.

A) classification
B) regression
C) time series
D) fuzzy matching

Question 32

Classification analysis to decide on whether to grant a loan to a potential borrower is most important for __________.

A) lenders
B) auditors
C) audit regulators
D) investors

Question 33

Deception that is intended to result in financial gain is called __________ .

A) fraud
B) errors
C) going concern
D) bankruptcy

Question 34

According to Beneish, which of the following factors are predictive of financial statement fraud?

A) Sales/Total assets.
B) Decrease in sales growth in the current period.
C) Increase in selling, general and administrative expenses.
D) Decline in gross margin as a percent of sales.

Question 35

Estimating the appropriate cost driver as part of activity-based costing is an example of which type of predictive analytics?

A) classification
B) regression
C) time series
D) variance analysis

Question 36

__________ is the repeatability of the financial statement variables (e.g., earnings, sales, cash flows) over time.

A) Persistence
B) Durability
C) Continuity
D) Repetitive Nature

Question 37

The ability of a computer to automatically learn without being explicitly programmed to do so is called __________.

A) machine learning
B) automated task repetition
C) robotic process automation
D) predictive automation

Question 38

What would be the best possible independent variable in a regression determining Sales next period, Sales_t+1?

A) Sales _t+1
B) Sales _t
C) Sales _t-1
D) Sales _t-2

Question 39

According to Beneish, which of the following factors are predictive of financial statement fraud?

A) Increase in sales growth in current period
B) Sales/Total assets
C) Market value of stockholders' equity/Book value of total debt owed
D) Net Income/Total equity

Question 40

Forecasting sales for budget purposes is an example of which type of predictive analytics?

A) Time series
B) Regression
C) Classification
D) Fuzzy Matching

Question 41

__________ will have very low risk because they are generally insured by the government. __________, however, will have a much higher risk and, thus, a much higher expected return.

A) Real estate; Bank savings accounts
B) Bank savings accounts; Stocks
C) Stocks; Bank savings accounts
D) Venture capital; Stocks

Question 42

Regression analysis can be used to help confidently identify __________.

A) which factors matter the most
B) which factors can be ignored
C) how factors influence each other
D) which factors matter most, can be ignored and how the factors influence each other

Question 43

What would be the independent variable in a regression determining "How are firm overhead costs dependent on the time for production?" at a manufacturing company?

A) Indirect material costs
B) Direct material costs
C) Machine hours
D) Overhead costs

Question 44

According to Altman, while those firms in the __________ zone are at risk of bankruptcy, they are not at significant risk of bankruptcy.

A) distress
B) gray
C) safe
D) green

Question 45

Cost drivers can be best identified by which of the following?

A) Intuition or gut instinct
B) Finding anomalies and outliers
C) Regression
D) Time Series analysis

Question 46

Which type of analysis would predictive analytics not be useful?

A) Classification
B) Finding anomalies and outliers
C) Regression
D) Time series analysis

Question 47

Which of the following is a predictive analytics technique used to estimate a specific dependent variable outcome based on independent variable inputs?

A) classification
B) regression
C) times series
D) variance analysis

Question 48

Predictive analytics is useful for which type of analysis?

A) Summarizing data
B) Finding anomalies and outliers
C) Uncovering patterns
D) Regression analysis

Question 49

When using regression analysis, the relationship between two variables matters when you are trying to understand __________.

A) how an independent variable impacts a dependent variable
B) how a dependent variable impacts an independent variable
C) how future values are based on past values of the same variable
D) how estimated trends from the past may continue into the future

Question 50

According to the text, Apple Computer was in the __________ zone in 1997, or at risk of bankruptcy.

A) distress
B) gray
C) safe
D) green