Q. A high-quality financial report may reflect:
- earnings smoothing.
- low earnings quality.
- understatement of asset impairment.
Solution
B is correct. High-quality financial reports offer useful information, meaning information that is relevant and faithfully represents actual performance. Although low earnings quality may not be desirable, if the reported earnings are representative of actual performance, they are consistent with high-quality financial reporting. Highest-quality financial reports reflect both high financial reporting quality and high earnings quality.
