- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 14. Evaluating Quality of Financial Reports
- Subject 2. Evaluating the Quality of Financial Reports
CFA Practice Question
In the Beneish model, which variable could MOST LIKELY indicate inappropriate revenue recognition?
B. GMI (gross margin index)
C. SGAI (sales, general, and administrative expenses index)
A. DSR (days sales receivable index)
B. GMI (gross margin index)
C. SGAI (sales, general, and administrative expenses index)
Correct Answer: A
DSR is measured as the ratio of days' sales in receivables in year t to year t-1. If a DSR is greater than 1, it could be because of inappropriate revenue recognition/revenue inflation.
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