CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

A change in accounting principle is treated as a value-irrelevant component of earnings. True or False?
Correct Answer: True

A change in accounting principle is value-irrelevant because it does not result in a future cash flow.

User Contributed Comments 4

User Comment
danlan What does this mean, "value-irrelevant component of earnings"?
ehc0791 It means the future value of a company should not depend on the way the accounting number being massaged
johntan1979 I think this view is not very accurate, because say a company changes from FIFO to LIFO, the company pays less of its earnings to Uncle Sam. The company gets to keep more of its earnings at the end of the day. So by saying changes in accounting principles is value-irrelevant is not entirely true, because it does create some value for some cases like the example I gave.
mswaby01 However it does not impact cash flow which is the basis of future value
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