CFA Level I · CFA Level I Exam · Financial Reporting Quality
Under the CFA Institute financial reporting quality framework, financial reports that are most likely described as having high-quality reporting are those that:
High-quality financial reporting provides decision-useful information about a company's performance and financial position. It must be relevant and faithfully represent economic reality. Smooth, steadily rising earnings or the absence of estimates are not the test, since estimates are unavoidable and smoothing may indicate manipulation.
- Aare free of any accounting estimates
- Bprovide decision-useful information about performance and positionCorrect
- Cshow earnings that increase steadily each year
Explanation
High-quality reporting is decision-useful: it is relevant and faithfully represents the company's performance and position. Steadily rising earnings can signal smoothing, and estimates are unavoidable and acceptable if reasonable.
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