CFA Practice Question

There are 89 practice questions for this study session.

CFA Practice Question

Are these statements true regarding the accrual component of earnings?

I. The accrual portion of earnings is less persistent than the cash portion of earnings.

II. Earnings performance attributable to the accrual component of earnings exhibits lower persistence than earnings performance attributable to the cash flow component of earnings.
Correct Answer: Both are true.

: The accrual and cash flow components of current earnings have different implications for the assessment of future earnings. While both components contribute to current earnings, current earnings performance is less likely to persist if it is attributable primarily to the accrual component of earnings as opposed to the cash flow component. This is because accruals are less likely to recur in future periods' earnings. High earnings performance that is attributable to the cash flow component of earnings is more likely to persist than high earnings performance that is attributable to the accrual component of earnings.

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