Module 25 Flashcards
High-quality financial reporting is:
decision useful: relevant, faithful representation
unbiased
quality of reported results are:
sustainable over time
adequate returns
Pertains to the quality of information in the financial reports
quality financial reporting
Low-quality earnings are likely not _____ over time
sustainable
because the company does not expect to generate the same level of earnings in the future or because earnings will not generate sufficient return on investment to sustain the company
Combining the results from two segments is an example of :
biased reporting
Earnings that result from non-recurring activities are _____, which are an example of :
unsustainable
lower-quality earnings
Depreciating equipment over the shortest estimated period of its useful life is a ______ accounting choice.
conservative
that reduces earnings in the early years and increases them in the future, creating a positive trajectory
Deferring research and development (R&D) investments into the next reporting period is an example of _________ by taking a _____ action
earnings management
real
Choices tend to decrease the company’s reported earnings and financial position for the current period
Conservative bias
choices tend to increase reported earnings or improve the financial position for the current period
Aggressive
Earnings smoothing is the understatement of earnings _____
volatility
Earnings smoothing: using _____ bias when company is doing well, and using _____ bias when company is not
conservative
aggressive
making intentional choices or deliberate actions to influence reported earnings and their interpretation
earnings management
The possibility of bond covenant violations may provide __________ to inflate earnings in the reporting period
motivation to managers
An audit is intended to provide assurance that the company’s financial reports are presented _______.
fairly, thus providing discipline regarding financial reporting quality.
To assist investors in evaluating operating performance, companies often report non-GAAP earnings by excluding ______.
asset impairment; charges either for long-lived assets, goodwill, or other intangible assets
The SEC prohibits the exclusion of charges or liabilities requiring cash settlement from any non-GAAP liquidity measures other than _______
EBIT and EBITDA
EBITDA is a _____ financial measure
non-GAAP
The __________ of payments is an example of how choices affect both the balance sheet and income statement.
capitalization
Capitalizing a payment changes the benefit from only the current period—making it an expense—to a benefit in future periods as an asset. The creation of an asset results in a comparable increase in stockholder’s equity
Bias choices must occur _____
in the current period in review
______ accounting, typically avoids a sustainability issue.
Conservative
Meeting or exceeding its own earnings guidance is a possible:
Motivation; for managers to issue low-quality financial reports
