- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 10. Financial Reporting Quality
- Subject 4. Detection of Financial Reporting Quality Issues
CFA Practice Question
Using a narrowly defined rule on consolidation of SPEs for a leasing transaction to justify non-consolidation of SPEs in other types of transactions results in a low quality of earnings. This is an example of ______.
B. using loopholes or bright-lines in accounting principles to structure transactions to achieve a desired outcome that differs from the economic structure of the transaction
C. using unrealistic or inappropriate estimates and assumptions to achieve a desired outcome
D. stretching accounting principles to achieve a desired outcome
A. following GAAP but selecting alternatives within GAAP that bias or distort reported results to achieve a desired outcome
B. using loopholes or bright-lines in accounting principles to structure transactions to achieve a desired outcome that differs from the economic structure of the transaction
C. using unrealistic or inappropriate estimates and assumptions to achieve a desired outcome
D. stretching accounting principles to achieve a desired outcome
Correct Answer: D
User Contributed Comments 1
| User | Comment |
|---|---|
| vatsal92 | A. No GAAP priciple is mentioned. B. Second best choice as the economic structure is changed C. No estimates are made D. Applicabilty of non-applicable principle, hence more correct than B. |