COMPANY ABC’S FINANCIAL STATEMENTS ADHERE TO GENERALLY ACCEPTED ACC...

1. - CFA 2018 LEVEL 2 FRA QUESTION BANK EVALUATING QUALITY OF FINANCIAL REPORTS QBANK
CFA 2018 LEVEL 2 FRA QUESTION BANK EVALUATING QUALITY OF FINANCIAL REPORTS QBANK

1. Company ABC’s financial statements adhere to generally accepted accounting principles

(GAAP). However, ABC understates earnings in periods when the company is performing

well and overstates earnings in periods when the company is struggling. Based on this

information ABC’s financial statements can be best categorized as:

A. Non-GAAP compliant.

B. GAAP compliant, but with earnings management.

C. GAAP compliant and decision useful with sustainable and adequate returns.

LO.b: Explain potential problems that affect the quality of financial reports.