Question #6
Reading: Reading 12 Evaluating Quality of Financial Reports
PDF File: Reading 12 Evaluating Quality of Financial Reports.pdf
Page: 4
Status: Incorrect
Correct Answer: B
Your Answer: B
Question
Which of the following is least likely an indicator of biased measurement in assessing balance sheet quality?
Answer Choices:
A. Overly high assumed discount rate for pension obligations
B. Understatement of impairment charges for property, plant, and equipment
C. Company’s investment in debt securities of other companies, carried on the books at market value
Explanation
Carrying investments in debt (or equity) securities at market value enhances balance sheet
quality and does not introduce a bias in the estimate. Understatement of impairment
charges on PP&E overstates value of PP&E. High discount rate reduces the value of PBO
and hence improves the funded position reflected on the balance sheet.