CFA Practice Question

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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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