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.