Steadily increasing cost of goods sold as a percentage of net revenues is an indication of A. decreasing earnings quality. B. financial statement fraud. C. increasing production efficiencies. D. increasing earnings quality.

When anomalies, accounting tricks, one-time events that may affect the real bottom-line numbers or performance are dismissed, the companies quality earnings are revealed. Outside factors can affect a company's quality of earnings. Inflation is an outside factor. If poor sales are hidden by the accounting then it may affect the earning quality. If a company sticks to the GAAP (Generally Accepted Accounting Standards ) then the quality of its earnings are higher. Companies also manipulate their quality earnings in order to avoid the taxes they owe to the government.