Which of the following should be attempted in order to gauge the quality of a company's earnings?

I. Assessing an adequacy of discretionary expenditures
II. Assessing degree of conservatism in reporting assets
III. Assessing degree of conservatism in reporting liabilities
IV. Assessing degree of conservatism in application of accounting principles

A)I, II, III, and IV
B)I, II, and IV
C)II, III, and IV
D)I, III, and IV

Question

Which of the following should be attempted in order to gauge the quality of a company's earnings?

I. Assessing an adequacy of discretionary expenditures
II. Assessing degree of conservatism in reporting assets
III. Assessing degree of conservatism in reporting liabilities
IV. Assessing degree of conservatism in application of accounting principles

A)I, II, III, and IV
B)I, II, and IV
C)II, III, and IV
D)I, III, and IV

Quizplus · Accepted Answer

All four options are relevant to gauging the quality of a company's earnings. Assessing discretionary expenditures can reveal if a company is artificially inflating its earnings by cutting necessary expenses. Evaluating the conservatism in reporting assets, liabilities, and the application of accounting principles helps in understanding if the company is overstating its financial health.

Which of the Following Should Be Attempted in Order to Gauge