Hi Brave Ones, Do I need to slow down the pace or is there another incongruent answer/explanation? CFAI B3 - FRA - Evaluating Financial Reporting Quality (P.313 Q.21) - is says that one way to spot misclassification of expenses is look for spikes in special items after a DECREASE (???) core operating margins If you opportunistically deduct from normal operating expenses you will get HIGHER core operating margins, not LOWER - on page 302 they write it correctly ("…INCREASES in core operating margins followed by spikes in negative special items…") - so for Q.21 neither of the 3 possible answers is valid Right or wrong I will go to sleep enough for today t
The situation is that my firm’s Operating Profit Margin is falling over subsequent periods. And my management gets worried about it as it reflects poorly on my firm’s performance. Then as a remedy for Operating Margin to look better, they manipulate expenses in subsequent period/s. They did this by shifting some of the expenses from Operating Expenses category to Special Expenses category. This will give a POSITIVE spike to Operating Profit and a NEGATIVE spike for profits after Special expenses. So, the answer C seems to be correct and the best choice among others.
Thks once again rus1bus. another day…corporate finance ahead, let’s see how it works.