All of the Following Are Reasons That One Should Be

question 3

Multiple Choice

All of the following are reasons that one should be cautious in interpreting financial statements EXCEPT

• A) firms can take steps to over- or understate earnings at various times.
• B) it is difficult to compare two firms that use different depreciation methods.
• C) financial managers have quite a bit of latitude in using accounting rules to manage their reported earnings.
• D) All of these choices are correct.

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Definitions:

Decision Avoidance

A behavior or tendency to defer, avoid, or abandon making choices to avert potential negative outcomes or regret.

Certainty Effect

The tendency for people to overvalue outcomes that are certain compared to those that are only probable.

Reactance

A motivational reaction to offers, persons, rules, or regulations that threaten or eliminate specific behavioral freedoms, prompting a desire to regain them.

Reactance Theory

A psychological theory suggesting that people have an aversive reaction to restrictions of their freedoms, leading to a motivation to regain them.