- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 8. Topics in Long-Term Liabilities and Equity
- Subject 1. Advantages of Leasing
CFA Practice Question
Management's intentional structuring of a lease transaction as an off-balance-sheet item (operating lease) illustrates how GAAP requirements may result in the quality of financial reporting being distorted. True or False?
Correct Answer: True
Managers with a good understanding of GAAP and its applications can sometimes structure transactions in a way that presents information in the most favorable light for their company or their own self-interest (incentive compensation, etc.) Analysts will often restate these numbers to better reflect the economic substance of the event.
User Contributed Comments 4
| User | Comment |
|---|---|
| kalps | FALSE, as GAAP requires disclosure of commitments under CL for the future five years |
| db28luke | GAAP does require disclosure, but it is usually buried near the end of the footnotes. Most people don't get that far. |
| poomie83 | Umm the question is refering to op lease - therefore true |
| ascruggs92 | kapls: CL's are not off balance sheet |