LOWER M-SCORES INDICATE AN INCREASED PROBABILITY OF EARNINGS MANIPULATION

3. Analyst 1: Lower M-scores indicate an increased probability of earnings manipulation.

Analyst 2: A GMI value greater than 1 indicates deteriorating gross margins.

A. Analyst 1 is correct.

B. Analyst 2 is correct.

C. Both analysts are correct.

LO.e: Describe the concept of sustainable (persistent) earnings.