- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 15. Integration of Financial Statement Analysis Techniques
- Subject 3. Off-Balance Sheet Leverage from Operating Leases
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 such a way that presents the 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 3
| 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 |