Which statement(s) is (are) true regarding earnings normalization?

I. With normalizing adjustments, analysts attempt to adjust private company earnings to a reasonably well-run, public company equivalent basis.
II. Unlike overstated expenses, understated expenses should not be adjusted in the process.

Correct Answer: I

I. Normalization of earnings is a process of equating private company earning to their as-if-public equivalent.
II. If private companies have limited profits, expenses may be understated to inflate reported income. They should still be normalized to reach the true income figures.