- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 4. Non-Recurring Items
CFA Practice Question
High-quality earnings are, by definition, ______.
B. accurate
C. conservative
A. repeatable
B. accurate
C. conservative
Correct Answer: A
Income statements displaying high earnings are considered high quality only if these earnings are repeatable; that is to say, the high earnings are not due to artificially low costs. High-quality earnings result from the use of conservative accounting principles that do not result in overstated revenues or understated costs.
User Contributed Comments 6
| User | Comment |
|---|---|
| Naufil2004 | Why is the last choice incorrect? |
| Gina | conservatism is an accounting concept by which you present your results with the least favorable figures. you can report conservatively, but run your business in such a way that your earnings wildly fluctuate from year to year (in which case they would not be considered of high-quality). |
| chenyx | High-quality earnings are repeatable,and result from the use of conservative accounting priciples that do not result in overstated revenues or understated costs. |
| olagbami | yeah right |
| vatsal92 | It is High-quality only if it's repetitive. |
| tunjihpmtd | yeah .correct |