When Assessing Earnings Persistence, It Is Important to Analyze Discretionary

question 15

Multiple Choice

When assessing earnings persistence, it is important to analyze discretionary expenditures. Which of the following is correct?

I. Research and development is generally considered a discretionary expenditure.
II. Decreased discretionary expenditures should always be taken as a positive indicator that the company is getting costs under control.
III. Advertising expenditures can be considered discretionary expenditures, which often have implications for future sales.
IV. Absolute levels of discretionary expenditures are more important than the level of expenditures relative to sales.

• A)I, II, and III
• B)I, III, and IV
• C)II, III, and IV
• D)I and III

---

Definitions:

Behaviourally Anchored Rating Scales

A performance appraisal method that uses specific descriptions of behavior to rate various levels of performance.

Graphic Rating Scales

A method used in performance appraisals where employees are rated based on predefined criteria using a visual scale such as numbers or symbols.

Critical-Incident Technique

A method used to gather facts about significant occurrences that have a positive or negative impact, aiding in problem-solving and decision-making processes.

Multiperson Comparisons

A process where the performance, abilities, or needs of multiple individuals are evaluated against each other.