CFA Practice Question

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CFA Practice Question

Which of the following are motivations to overreport earnings?

I. Negotiation of labor union contracts
II. Higher incentive compensation
III. Meeting market's earnings expectations
IV. Meeting debt covenants
V. Obtaining trade relief
Correct Answer: II, III and IV

Motivation to artificially increase earnings could be to meet expectations, meet debt covenants, or improve incentive compensation.

User Contributed Comments 4

User Comment
DS12 IV is correct, because lenders to the firm may require a firm to maintain specific profits.
hoyleng y II is correct? pls explain. thanks
poomie83 Compensation for management is tied in with performance
dshawkri bonuses or stock options
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