CFA Practice Question

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CFA Practice Question

Which statement is true?

A. If financial reporting quality is high, a company's earnings quality must also be high.
B. High reporting quality increases company value.
C. It is hard to assess earnings quality if we have low reporting quality.
Correct Answer: C

A. We can have high reporting quality but low earnings quality.
B. High earnings quality increases company value.
C. Low financial reporting quality impedes assessment of earnings quality and impedes valuation.

User Contributed Comments 3

User Comment
babic The existence of high-quality financial reporting itself cannot guarantee high quality earnings, but it allows the investor to make such an assessment.
ascruggs92 B. If management is trying to hide something, high reporting quality could actually decrease the value of the company (i.e. Enron)
davidt87 how, are you using Enron as an example of high reporting quality? one of the largest accounting firms in the world basically disappeared over night for signing off on Enrons financials...

babic is right
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