International Financial Statement Analysis Workbook, 3rd Edition

CHAPTER 11 FINANCIAL REPORTING QUALITY

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• distinguish between financial reporting quality and quality of reported results (including quality of earnings, cash flow, and balance sheet items);
• describe a spectrum for assessing financial reporting quality;
• distinguish between conservative and aggressive accounting;
• describe motivations that might cause management to issue financial reports that are not high quality;
• describe conditions that are conducive to issuing low-quality, or even fraudulent, financial reports;
• describe mechanisms that discipline financial reporting quality and the potential limitations of those mechanisms;
• describe presentation choices, including non-GAAP measures, that could be used to influence an analyst's opinion;
• describe accounting methods (choices and estimates) that could be used to manage earnings, cash flow, and balance sheet items;
• describe accounting warning signs and methods for detecting manipulation of information in financial reports.

SUMMARY OVERVIEW

• Financial reporting quality can be thought of as spanning a continuum from the highest (containing information that is relevant, correct, complete, and unbiased) to the lowest (containing information that is not just biased or incomplete but possibly pure fabrication).
• Reporting quality, the focus of this chapter, pertains to the information disclosed. High-quality reporting represents the economic reality ...