标题: Earning Quality and Conservative Accounting Policy [打印本页] 作者: noel 时间: 2011-7-13 13:33 标题: Earning Quality and Conservative Accounting Policy
From what I've read, I understand the degree of conservatism should not be used as a measure of earning quality, because accruals revert faster with more aggressive policies. For example, double-declining method doesn't result in lower earning quality compared to straight-line. But I've seen many practice exams saying aggressive accounting leads to lower earning Q (ex. Schweser Vol2 exam 2AM #28)
High accrual ratios, securitization, and off-balance accounting are a sign of low earning quality. But what about depreciation method or R&D capitalization?
Edited 1 time(s). Last edit at Friday, May 27, 2011 at 11:19AM by zestzorb.作者: Sportsman 时间: 2011-7-13 13:33
SL deprec is more aggressive than DDB. Capitalizing R&D, which should be expensed usually, is probably pretty aggressive. Not sure if that answers your question.作者: yodacaia 时间: 2011-7-13 13:33
No, depreciation method choice is fine as long as they are consistent with it. But the main problem is manipulating estimates such as salvage and useful lives.作者: defour44 时间: 2011-7-13 13:33
zestzorb Wrote:
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> Does accounting conservatism, such as depreciation
> method, affect earning quality?
this is like the whole point of FRA. accounting choices effect earnings quality. and analyst job is to analyze these choices and effects.
if I am taxi driver and i depreciate my car for 7 years, then i magically say it will last 50 years and i will depreciate it over 5 decades, how good is my earnings quality?作者: redskins44 时间: 2011-7-13 13:33
Thanks Dreary and prophets. So we can conclude that accounting methods play no role but what's important is the accounting estimates.作者: zhaoyp 时间: 2011-7-13 13:33
ofc accounting methods play a role... if i account for a security as held for trading and it makes a lot of money and i account for other securities as available for sale and it loses a ton, then go to wall st. and tell everyone how amazing my co's earnings are... ???
saying accounting methods have no role, is like saying words have no meaning -- only action matters. if so then how does obama get elected? lol.. !作者: spreads 时间: 2011-7-13 13:33
No. I said depreciation method choice is fine, but accounting methods do matter of course.
