R. 27, Evaluating Financial Reporting Quality EOC q. 21 (pg. 420) A warning sign that ordinary expenses are now being classified as nonrecurring or non-operating expenses is: The answer is ‘C’ - falling core operating margin FOLLOWED BY a spike in negative special items. Is this to be interpreted as falling core margin one year (thus giving management an an incentive to be creative with accounting) and then NEXT year the negative special items spikes (negative spike of course)? The core operating margin increases when you remove items from SG&A or COGS and dump them into special items. ex. 5 on page 400 shows this clearly: 2004 to 2005 - core margins are falling (incentive for creative accounting) then in 2006 - a negative spike in extraordinary items I guess if the answer was worded: a higher core operating margin AND by a spike in negative special items …that would be correct to.