When analyzing financial statements, it is important to recognize that accounting distortions can arise. Accounting distortions are those things that cause deviations in accounting information from the underlying economics. Which of the following statements is not correct?
A)Accounting distortions can arise as management may deliberately manipulate financial statements.
B)Accounting distortions arise often through application of (correct) accounting principles.
C)Accounting distortions can affect the quality of earnings.
D)Accounting distortions arise if the stock market is not efficient.

Question

Quizplus · Accepted Answer

Accounting distortions are caused by factors such as differences in accounting policies and estimates, accounting errors and fraud. The efficiency of the stock market does not play a role in causing these distortions. Therefore, statement D is incorrect.

When Analyzing Financial Statements, It Is Important to Recognize That