Question

Which of the following statement is not true? Earnings can be viewed as being composed of...

Which of the following statement is not true?

  1. Earnings can be viewed as being composed of a cash component and an accruals component.
  2. Earnings with a larger component of accrual would be more persistent and thus of high quality.
  3. Earnings with a larger component of cash flow would be more persistent.
  4. All of them.
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Answer #1

Answer : Option B Earnings with a larger component of accrual would be more persistent and thus of high quality.

Reason :

Earnings can be viewed as being composed of a cash component and an accruals component is a true statement.Also Earnings with a larger component of accrual would be less persistent and thus of low quality whereas Earnings with a larger component of cash flow would be more persistent. Results have shown that Cash Component is more persistent than accrual component.Therefore Earnings with a larger component of accrual would be more persistent and thus of high quality is not a true statement

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