An analyst assessed a company and determined the company reported a "high quality of earnings." This implies that
A)management issued a press release indicating it was not aware of any fraud during the current year.
B)the company's management exercised little or no discretionary influence in reporting financial statement information to shareholders.
C)management has used its influence in determining the dollar amounts reported on financial statements.
D)income statement items reported during the current period can be expected to reflect future income levels.

Question

Quizplus · Accepted Answer

A "high quality of earnings" implies that the financial statements are reliable and transparent, indicating that management exercised little or no discretionary influence in reporting financial statement information to shareholders. This suggests that the company's earnings are sustainable and will continue to reflect future income levels. Choice A is not a direct indicator of high quality of earnings, while Choice C implies that management has exerted influence, which is contrary to the definition of a high quality of earnings. Choice D is not entirely accurate, as there may be unpredictable factors that could affect future income levels.

An Analyst Assessed a Company and Determined the Company Reported