Which of the following statements regarding the quality of income and fraudulent financial reporting is NOT true?
A) Net income assumes that all revenues are eventually realized as cash inflows and all expenses are realized as cash outflows. The quality of income ratio is a measure of the extent to which this assumption should be considered valid.
B) Fraudulent financial reporting may involve delayed expense recognition.
C) Fraudulent financial reporting is more likely to result in overstatement of net cash flows from operating activities rather than as overstatement of net income.
D) Fraudulent financial reporting may involve aggressive revenue recognition, that is, recognizing revenue before it is earned.

Question

Quizplus · Accepted Answer

Fraudulent financial reporting is more likely to result in overstatement of net income rather than net cash flows from operating activities because inflating net income can be used to meet earnings targets or increase the company's stock price, while inflating net cash flows from operating activities is more difficult to achieve.

Which of the Following Statements Regarding the Quality of Income