Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Question
Chapter 6, Problem 1QE
90907-6-1QE
To determine
State a particular example of poor accounting quality that might hamper the
Expert Solution & Answer
Explanation of Solution
Example of poor accounting quality that might hamper the forecasting of expected future earnings:
- For example, an entity that reports earnings ruled out by a substantial one-time gain from the sale of real estate tangential to the entity’s operations indicates poor earnings quality as the probabilities are little that the firm can reproduce the gain in upcoming periods.
- One more example is an entity stating a huge expense from a warehouse fire that did not have insurance coverage. Excessive small earnings were recorded as the fire loss perhaps is not revealing future earnings of the entity.
- But still, it is significant to remember that highly qualified disclosure can alleviate problems relating to earnings quality. If these items are temporary and the firm’s disclosure tags them in a method that highpoints the transitivity, the analyst might exclude the items and earnings quality is high.
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Students have asked these similar questions
Th e information provided by a low-quality fi nancial report will most likely :A . decrease company value.B . indicate earnings are not sustainable.C . impede the assessment of earnings quality.
Which of the following statements is false?
a.Financial accounting must conform to GAAP.
b.Managerial accounting sometimes relies on past information.
c.Managerial accounting does not need to conform to GAAP.
d.There is no overlap between financial and managerial accounting.
How can the qualitative faithful representation (reliability) characteristic be improved in high-quality accounting information? Do not simply repeat what it is, provide suggestions as to how a particular part of the qualitative characteristics could be improved.
Please provide different answers and explanations than copy and pasting:
“Accounting information is reliable if these are-Complete - Financial statements should not exclude any transaction, Neutral - The degree to which information is free from bias. Note that there are subjectivity and estimation involved in financial statements, therefore information cannot be truly "neutral." However, if a company polled 1,000 accountants and took the average of their answers, that would be considered neutral and free from bias. and Free from error - The degree to which information is free from errors.”
Chapter 6 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
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Similar questions
- Which of the following statements is false regarding planning analytical procedures in the revenue cycle? a. As revenue is typically regarded as a high-risk account, planning analytical procedures related to revenue are not required. b. The first step in planning analytical procedures includes developing an expectation of recorded amounts or ratios, and evaluating whether that expectation is precise enough to accomplish the relevant objective. c. Trend analysis would not be appropriate as a plan-fling analytical procedure in the revenue cycle. d. All of the above statements are false.arrow_forwardIs there a way to prevent managers from focusing on accounting measures as performance measures?arrow_forwardHow does subjective accounting policies at General Electric assist in hiding poor decision-making results on the Income Statement and Balance Sheet?arrow_forward
- Explain differential effects on accounting standards.arrow_forwardWhich of the following situations violates the concept of reliability? Relevance is the capacity of information to make difference in decision by helping users from predictions about outcome of past, present and future events, or confirm/correct prior expectations The quality of reliability assures readers that the financial information is free from bias and faithfully represents what it purports to show, including adequate disclosure of significant information Under the IASB Framework for the Preparation and presentation of financial statements, conservatism is not a concept that is recognized as a qualitative objective I and II only II and III only I and III only I, II and IIIarrow_forwardWhat is the historical cost principle and how does it impact financial reporting? Provide an example of how the historical cost principle might lead to distorted financial statements.arrow_forward
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