CFA Practice Question

There are 57 practice questions for this study session.

CFA Practice Question

Which of the following observations signal(s) poor quality of figures provided in the income statement and the balance sheet?

I. Bill-and-hold sales.
II. Use of special purpose entities (SPEs).
III. Short depreciable lives.
IV. Low pension discount rate.
Correct Answer: I and II

I recognizes revenue early.
II: Income may be overstated by sales to the special purpose entity or a decline in the value of assets transferred to the SPE.
Short depreciable lives and low pension discount rate are examples of conservative accounting estimates and assumptions.

User Contributed Comments 4

User Comment
johnnybee good question
ssradja agreed
ashish100 "The discount rate refers to the level at which future pension obligations are discounted to their present value. A higher discount rate reduces the reported benefit obligation, while a lower discount rate raises the obligation" - danger zone
Levancho Why not III and IV? I understand they are not part of an aggressive accounting practices, but does not conservative assumptions also contribute to the lower quality of the statements?
You need to log in first to add your comment.