Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 2QE
90907-6-2QE
To determine
Explain the way the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Which of the following best describes the potential impact of business risk on Earnings Quality?
Select one:
a. Business risk is mostly composed of financial risk factors and it has minimal effect on earnings quality.
b. Higher earnings quality is linked with companies more insulated from business risk. While business risk is not primarily a result of management’s discretionary actions, this risk can be lowered by skillful management strategies.'
c. A higher level of earnings quality can be observed in the industries with high business risk, because higher risk means higher returns
d. For managing business risk, the managers almost have no discretion, therefore business risk is not directly or indirectly related to earnings quality.
Managers are often faced with conditions that may cause earnings to be managed. There is a difference between managing income and manipulating earnings. Excluding the ethical and fraud issues associated with managing earnings:
Identify conditions that would lead an analysist to expect that management might attempt to manage earnings upward and,
Identify conditions that would lead an analysist to expect that management might attempt to manage earnings downward.
Describe earnings quality and how it is impacted by management practices to alter reported earnings.
Chapter 6 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Knowledge Booster
Similar questions
- Is there a way to prevent managers from focusing on accounting measures as performance measures?arrow_forwardThe chapter encourages analysts to develop forecasts that are realistic, objective, and unbiased. Some firms managers tend to be optimistic. Some accounting principles tend to be conservative. Describe the different risks and incentives that managers, accountants, and analysts face. Explain how these different risks and incentives lead managers, accountants, and analysts to different biases when predicting uncertain outcomes.arrow_forwardWhich of the following statements regarding traditional accounting is true? a. Traditional accounting does not provide managers in a JIT setting with timely information. b. The financial orientation allows for effective measuring disparate items. c. Overhead allocations may lead to cost distortions. d. All of the above are true statements. e. A and C are true, but B is not true.arrow_forward
- Evaluate the following statements from an ethical perspective:“Earnings management in a narrow sense is the behavior of management to play with the discretionary accrual component to determine high or low earnings.”“Earnings are potentially managed, because financial accounting standards still provide alternative methods.”arrow_forwardHow does subjective accounting policies at General Electric assist in hiding poor decision-making results on the Income Statement and Balance Sheet?arrow_forwardEconomic consequences of accounting standard-setting means: a. standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard. b. standard-setters must ensure that no new costs are incurred when a new standard is issued. c. the objective of financial reporting should be politically motivated to ensure acceptance by the general public. d. accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.arrow_forward
- Which of the statement is TRUE in Managements’ Attitude as part of factor influencing the decision making? A. A conservative finance manager will attach greater importance to profitability rather than to liquidity. On the other hand, an aggressive financial manager will stress the latter, and financial decisions will be taken accordingly. B. An aggressive finance manager will attach greater importance to liquidity rather than to profitability. On the other hand, a conservative financial manager will stress the latter, and financial decisions will be taken accordingly. C. A conservative finance manager will attach greater importance to liquidity rather than to profitability. On the other hand, an aggressive financial manager will stress the latter, and financial decisions will be taken accordinglyarrow_forwardWhich of the following statements most likely describes a situation that would motivate amanager to issue low-quality fi nancial reports?A . Th e manager’s compensation is tied to stock price performance.B . Th e manager has increased the market share of products signifi cantly.C . Th e manager has brought the company’s profi tability to a level higher thancompetitors.arrow_forwardWhich statement is incorrect?a. Both financial accounting and managerial accounting adhere to objectivity and cost concepts.b. Cost accounting is a tool of both financial accounting and managerial accounting.c. Although financial and managerial accounting differs in many ways, they are similar in that both rely on the same underlying financial data.d. Managerial accounting places greater emphasis on the future than financial accounting, which is primarily concerned with the paste. None of the abovearrow_forward
- Define materiality. How does materiality come into play when assessing financial statement restatements? Other than materiality, what is the one word that might be the most distinguishing factor between ethical earnings management and unethical earnings management?arrow_forwardWhich of the following is not a managerial planning or control report? Effectiveness of advertising and promotionAnalysis of bad debt and credit policies Sales analysis and profitability analysisInventory availabilityarrow_forwardWhich of the following situations is most likely to pose a problem for companies that use return on investment as a measure of a manager’s performance? a. Managers may be encouraged to purchase more operating assets than they otherwise should. b. Managers may be discouraged from purchasing operating assets that could improve overall profitability. c. Managers may be discouraged from reducing their division’s costs. d. Managers may be discouraged from paying off debt in order to reduce costsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College