Asked by Melanie Hershock on Jul 22, 2024
Verified
Earnings are deemed to be of high quality when they are sustainable;earnings quality is also affected by management's choice of accounting methods.
Sustainable
The ability of something to be maintained at a certain rate or level without depleting natural resources or causing severe ecological damage.
Earnings Quality
A measure of the reliability of a company’s earnings as an indicator of its financial health and performance.
Accounting Methods
Systems used by a company to keep track of its financial transactions and to prepare financial statements, such as cash basis or accrual basis accounting.
- Comprehend the criticality of enduring, high-caliber earnings and the effects of accounting decisions on these earnings.
Verified Answer
SB
sonia bajwaJul 24, 2024
Final Answer :
True
Explanation :
High quality earnings are those that can be sustained over time, and such sustainability is often linked to the underlying economic performance of a company. However, the quality of earnings can also be affected by management's choice of accounting methods, which can either enhance or detract from the accuracy and relevance of reported earnings. Therefore, both sustainability and accounting choices play a role in determining earnings quality.
Learning Objectives
- Comprehend the criticality of enduring, high-caliber earnings and the effects of accounting decisions on these earnings.