- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 10. Financial Reporting Quality
- Subject 3. Context for Assessing Financial Reporting Quality
CFA Practice Question
Which of the following are motivations to overreport earnings?
II. Higher incentive compensation
III. Meeting market's earnings expectations
IV. Meeting debt covenants
V. Obtaining trade relief
I. Negotiation of labor union contracts
II. Higher incentive compensation
III. Meeting market's earnings expectations
IV. Meeting debt covenants
V. Obtaining trade relief
Correct Answer: II, III and IV
Motivation to artificially increase earnings could be to meet expectations, meet debt covenants, or improve incentive compensation.
User Contributed Comments 4
| User | Comment |
|---|---|
| DS12 | IV is correct, because lenders to the firm may require a firm to maintain specific profits. |
| hoyleng | y II is correct? pls explain. thanks |
| poomie83 | Compensation for management is tied in with performance |
| dshawkri | bonuses or stock options |