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CFA Level I · CFA Level I Exam · Financial Reporting Quality

A manager records revenue in the current period for goods that will only be shipped next quarter, in order to meet an earnings target. This reporting is most likely:

This is non-compliant reporting intended to mislead. Recognizing revenue before goods are delivered breaches the revenue recognition requirements, and the motive of meeting an earnings target indicates deliberate misstatement rather than a permissible aggressive choice within the standards.

  1. Abiased, within GAAP-compliant but misleading choices
  2. Bnon-compliant with accounting standards and intended to misleadCorrect
  3. Ccompliant and decision-useful because it raises earnings

Explanation

Recognizing revenue before control transfers violates the standards, so it is non-compliant. Combined with intent to hit a target, it is fraudulent-type reporting, not merely an aggressive choice within the rules.

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