- CFA Exams
- CFA Level I Exam
- Study Session 9. Financial Reporting and Analysis (4)
- Reading 29. Financial Reporting Quality
- Subject 4. Detection of Financial Reporting Quality Issues
CFA Practice Question
Which statement is true?
A. Cash flow is real and not subject to the vagaries of GAAP or the whims of accountants.
B. Cash flow is measured by a standardized, immutable process, without the assumptions and interpretations inherent in the measurement of accrual-based income.
C. Because they can be readily confirmed, the balance in cash at a period's end and the total change in cash during a reporting period are not prone to misstatement.
Explanation: Like earnings, cash flow can be managed and cash flow classification is subject to manipulation, creating a misleading signal of sustainable financial performance.
User Contributed Comments 4
| User | Comment |
|---|---|
| DiscoAfro | cashflow classification can be manipulated. But the question refers to cash flow (as in total cash flow). And total cash flow can not be manipulated.... |
| nostalgia | cash flow itself is difficult to manipulate, but categorization is easy to be changed. |
| cfastudypl | balance in cash at period's end is indeed not prone to misstatement but of course the cash flow classification with good understanding is quite easy to manipulate but you cannot manipulate your bank or cash or cash equivalent figures. |
| workinehg | Despite cash balances are being less likely prone to misstatement, there is a chance of manipulating the balance. Risk Weights allocated by auditors ale vey low and managements are using this opportunity for manipulation, Satyam is a good example. |