Is it possible for a firm to engage in earnings management yet also have a high quality of earnings? Why or why not?

• A  :

  Yes, it is possible for a firm to do both. In order to be successful, however, the firm must provide full and transparent information related to any unusual or unexpected changes in revenues, expenses, gains, and/or losses.

• B  :

  Yes, it is possible for a firm to do both. In fact, the more a firm engages in earnings management practices in order to smooth out its revenues, expenses, gains, and/or losses, the higher its quality of earnings will be.

• C  :

  Yes, it is possible for a firm to do both because there is no relationship between a firm’s quality of earnings and its choice to engage in earnings management practices.

• D  :

  No, it is not possible for a firm to do both. In fact, any attempts to engage in earnings management practices of any kind automatically decrease a firm’s quality of earnings.

Answer rating: 100% (QA)

The answer is D No it is not possible for a firm to engage in earnings management yet also have a hi... View the full answer