Which of the following statements about evaluating High Plains financial reporting quality is least accurate?

High Plains’ average net operating assets at the end of 2008 and 2007 was $977.89 million and $642.83 million, respectively.

Which of the following statements about evaluating High Plains financial reporting quality is least accurate?
A . Higher Plains may have manipulated earnings due to the risk of
B . High Plains’ extreme revenue growth will likely revert back to normal levels over time.
C . Because of the estimates involved, a higher weighting should be assigned to the accrual component of High Plains’ earnings as compared to the cash component.

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Answer: C

Explanation:

It appears thai High Plains manipulated its earnings upward in 2008 to avoid default under its bond covenants.

However, the higher earnings are lower quality as measured by the cash flow accrual ratio. Because of the estimates involved, a lower weighting should be assigned to the accrual component of High Plains’ earnings. Extreme earnings (including revenues) tend to revert to normal levels over time (mean reversion). (Study Session 7, LOS 25.b,e)