- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 22. Equity Valuation: Applications and Processes
- Subject 3. The Valuation Process
CFA Practice Question
Which of the following observations signal(s) poor quality of figures provided in the income statement and the balance sheet?
II. Low assumed rate of compensation growth for pensions.
III. Expensing customer acquisition costs.
I. Classification of non-operating income or gains as part of operations.
II. Low assumed rate of compensation growth for pensions.
III. Expensing customer acquisition costs.
A. I and II
B. I and III
C. I, II and III
Explanation: I may mask a decline in operating performance. II is a non-conservative accounting estimate that may indicate actions taken to boost current reported income.
User Contributed Comments 4
| User | Comment |
|---|---|
| tktk | The first two demonstrate poor earnings quality and the third definitely shows poor quality (thus making it C - even though i chose A too) |
| danlan2 | III does not show poor quality, so A is right. |
| Willgonnabaight | expensing a cost is more conservative |
| giovannig | If compensation growth is i.e "salary", decreasing this expectation of PBO would decrease pension costs and boost earnings..low quality boost. |