- CFA Exams
- CFA Level I Exam
- Study Session 9. Financial Reporting and Analysis (4)
- Reading 29. Financial Reporting Quality
- Subject 2. Quality Spectrum of Financial Reports
CFA Practice Question
Which of the following is least likely to result in low quality earnings?
A. Recording revenues even though the customer has no obligation to pay
B. Reducing liabilities by changing accounting assumptions
C. Using aggressive pension assumptions
Explanation: A is fraud and has NO financial reporting quality. The sales should not be recognized.
User Contributed Comments 10
| User | Comment |
|---|---|
| Rotigga | Nice trick question. |
| abhinavkapoor | can somebody explain this? |
| thekobe | tricky one |
| fidcuevas | Statements B and C would result in "low quality earnings." Statement A would result in outright fraudulent earnings. I think that's the proper explanation - nice trick question indeed. |
| johntan1979 | Nice one. |
| CJPerugini | Pretty sure "No Quality" earnings is not an actual thing. |
| CJPerugini | "The lowest-quality of financial reports portray fictitious transactions or omit actual transactions; such financial reports are fabrications and not useful to assess earnings quality." - CFA Institute The quality of earnings cannot be assessed because of low financial reporting quality (non-GAAP compliant). |
| Inaganti6 | this question is nothing short of rape. It's like asking which one of the following has four legs ? A chair A cat A lizard you can pick whatever, but if you picked A chair, the answer could be RIGHT because it depended on the assumption the testmaker enforces upon you that they were referring to non living things. Really hate these kind of questions. |
| nirens | Inaganti6 - well articulated. The sort of question that would be easy to be caught out on late into a test when your brain just wants to do anything else... |
| ascruggs92 | Agree with Inaganti6. This is semantics at it's finest. |