CFA Practice Question

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CFA Practice Question

In the Beneish model, which variable could MOST LIKELY indicate inappropriate revenue recognition?

A. DSR (days sales receivable index)
B. GMI (gross margin index)
C. SGAI (sales, general, and administrative expenses index)
Correct Answer: A

DSR is measured as the ratio of days' sales in receivables in year t to year t-1. If a DSR is greater than 1, it could be because of inappropriate revenue recognition/revenue inflation.

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