Which of the following is lowest in quality on the spectrum of GAAP conforming financial reports?
A、Aggressive accounting choices
B、Earnings management
C、Conservative accounting choices
【Answer to question 1】B
【analysis】
B is correct.Earnings management represents deliberate actions to influence reported earnings and their interpretation.The distinction between earnings management and biased choices is subtle and,primarily,a matter of intent.
A is incorrect because aggressive accounting is a biased choice.Biased accounting choices are higher in quality than earnings management on the spectrum of GAAP conforming financial reports.
C is incorrect because conservative accounting is a biased choice.Biased accounting choices are higher in quality than earnings management on the spectrum of GAAP conforming financial reports.
Questions 2:
Which of the following techniques is most likely to provide a company with the opportunity to inflate earnings?
A、Reductions in the useful lives of fixed assets
B、Last-in,first-out(LIFO)liquidation
C、Increases to tax asset valuation allowances
【Answer to question 2】B
【analysis】
B is correct.The LIFO liquidation of low-cost inventory layers results in the transfer of low inventory costs to the income statement as costs of goods sold.With reduced costs of goods sold,reported earnings are higher.
A is incorrect.Reducing the useful lives of fixed assets results in faster depreciation,and hence higher reported depreciation expense and lower reported earnings.
C is incorrect.Increases to tax asset valuation allowances are equivalent to asset write-downs,which reduce reported earnings.
写评论
