Question #25
Reading: Reading 12 Evaluating Quality of Financial Reports
PDF File: Reading 12 Evaluating Quality of Financial Reports.pdf
Page: 19
Status: Correct
Correct Answer: B
Question
Which one of the following choices is least likely to be an indicator of poor-quality earnings?
Answer Choices:
A. An investigation by the market regulatory authority is initiated
B. Reported earnings handily beat analyst estimates
Explanation
Enforcement actions by regulatory authorities and restatements of previously issued
financial statements are two (external) indicators of poor-quality earnings. Earnings that
meet or narrowly beat analyst estimates are considered to be suspect for poor quality.
Handily beating analyst estimates is not considered to be an indicator of poor-quality
earnings.