Answer: Cash-flow-based accruals ratio only

## Explanation For accruals ratios, **lower absolute values indicate better earnings quality** (less accruals manipulation). **Analysis:** - **Cash-flow-based accruals ratio**: Changed from -3% to -1% → **Absolute value decreased** from 3% to 1% → **IMPROVEMENT** - **Balance-sheet-based accruals ratio**: Changed from 3% to 1% → **Absolute value decreased** from 3% to 1% → **IMPROVEMENT** **Wait - let me recheck the data:** - Cash-flow-based: -3% to -1% → Absolute value: 3% to 1% → Improvement - Balance-sheet-based: 3% to 1% → Absolute value: 3% to 1% → Improvement Actually, **BOTH ratios show improvement** because both decreased in absolute value from 3% to 1%. The correct answer is **C** - Both ratios show improvement. **Reasoning:** Lower absolute accruals ratios indicate less earnings management and higher earnings quality. Both ratios decreased from 3% to 1% in absolute terms, indicating improvement in financial reporting quality.

Author: LeetQuiz Editorial Team