CFA Practice Question

CFA Practice Question

Which of the following statements regarding accounting shenanigans is CORRECT?

I. They do not produce links between income statements and balance sheets as they are hidden within earnings only.
II. They do not have intertemporal links.
III. Future expense may be shifted to current period as a special chargeoff to reduce current period income and inflate future period income.
IV. Manipulations by deferrals and chargeoffs cancel out in the same year across different accounts and hard to detect.
A. I, II and III.
B. III and IV.
C. III only.
Explanation: Shenanigans often have intertemporal links. Chargeoffs in one period accelerate recognition of future period expenses and distort income by violating the matching principle. They have an offsetting effect in future periods which look good at the expense of the current period.

User Contributed Comments 4

User Comment
chamad what does shenaningan mean?
pjdeschenes Fooling around. Manipulating.
jackwez I wouldn't call that a shenaningan... they are effectively managing earnings rather than manipulating earnings...
pdubyac You're not supposed to manage or smooth earnings, you are supposed to present earnings for the period, as fairly stated as can be to comply with the matching principle.

Manage = manipulate = shenanigans
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