- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 26. Financial Reporting Quality
- Subject 4. Detection of Financial Reporting Quality Issues
CFA Practice Question
Which statement is true?
B. Cash flow is measured by a standardized, immutable process, without the assumptions and interpretations inherent in the measurement of accrual-based income.
C. Because they can be readily confirmed, the balance in cash at a period's end and the total change in cash during a reporting period are not prone to misstatement.
A. Cash flow is real and not subject to the vagaries of GAAP or the whims of accountants.
B. Cash flow is measured by a standardized, immutable process, without the assumptions and interpretations inherent in the measurement of accrual-based income.
C. Because they can be readily confirmed, the balance in cash at a period's end and the total change in cash during a reporting period are not prone to misstatement.
Correct Answer: C
Like earnings, cash flow can be managed and cash flow classification is subject to manipulation, creating a misleading signal of sustainable financial performance.
User Contributed Comments 2
| User | Comment |
|---|---|
| Inaganti6 | How can you know unless you check the company's bank accounts ? This is really over optimistic I think. Anyone from India who remembers the Satyam scandal knows how imprudent it would be to believe the cash balance is accurate. |
| sshetty2 | In the US at least; publicly traded companies have to release financial statements that have been audited |