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Basic Question 1 of 22

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 ______.

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

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.
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Craig Baugh

Craig Baugh

Learning Outcome Statements

describe presentation choices, including non-GAAP measures, that could be used to influence an analyst's opinion

describe accounting methods (choices and estimates) that could be used to manage earnings, cash flow, and balance sheet items

describe accounting warning signs and methods for detecting manipulation of information in financial reports

CFA® 2024 Level I Curriculum, Volume 3, Module 10.