CFA Practice Question

There are 57 practice questions for this study session.

CFA Practice Question

Which of the following observations signal(s) poor quality of figures provided in the income statement and the balance sheet?

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.
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