Jake Lake, a financial analyst, has identified several items in the financial reports of several (hypothetical) companies. Describe each of these items in the context of the financial reporting quality spectrum.

1. ABC Co.’s 2012 earnings totaled $233 million, including a $100 million gain from selling one of its less profitable divisions. ABC’s earnings for the prior three years totaled $120 million, $107 million, and $111 million. The company’s financial reports are extremely clear and detailed, and the company’s earnings announcement highlights the one-time nature of the $100 million gain.

2. DEF Co. discloses that in 2012, it changed the depreciable life of its equipment from 3 years to 15 years. Equipment represents a substantial component of the company’s assets. The company’s disclosures indicate that the change is permissible under the accounting standards of its jurisdiction but provide only limited explanation of the change.

3. GHI Co.’s R&D expenditures for the past five years have been approximately 3% of sales. In 2012, the company significantly reduced its R&D expenditures. Without the reduction in R&D expenditures, the company would have reported a loss. No explanation is disclosed.