CFA Practice Question

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CFA Practice Question

Using a narrowly defined rule on consolidation of SPEs for a leasing transaction to justify non-consolidation of SPEs in other types of transactions results in a low quality of earnings. This is an example of ______.

A. following GAAP but selecting alternatives within GAAP that bias or distort reported results to achieve a desired outcome
B. using loopholes or bright-lines in accounting principles to structure transactions to achieve a desired outcome that differs from the economic structure of the transaction
C. using unrealistic or inappropriate estimates and assumptions to achieve a desired outcome
D. stretching accounting principles to achieve a desired outcome
Correct Answer: D

User Contributed Comments 1

User Comment
vatsal92 A. No GAAP priciple is mentioned.
B. Second best choice as the economic structure is changed
C. No estimates are made
D. Applicabilty of non-applicable principle, hence more correct than B.
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