To assess the quality of earnings, financial statement users should look at
A) the income statement only.
B) the statement of cash flows.
C) the level of business risk.
D) the whole set of financial statements, including the notes, as well as environmental factors.

Question

Quizplus · Accepted Answer

To fully assess the quality of earnings, it is necessary to consider all financial statements, including the notes, as well as external factors such as the economic environment and industry trends. While the income statement and statement of cash flows provide important information, they do not give a complete picture of the company's financial health and the sustainability of its earnings. Looking at the level of business risk can also be helpful, but it is not sufficient on its own. Therefore, the best choice is to look at the whole set of financial statements, including the notes, as well as environmental factors.

To Assess the Quality of Earnings, Financial Statement Users Should