Earnings Quality: Evidence from the Field — The Harvard Law School Forum on Corporate Governance

Small business of-interest and news-to-watch.   A study with findings from the CFO side is believed to provide better insights into the issues and a probable fix.

Excerpt:  Our findings raise a host of possible directions for future research. Here we only discuss a few broad themes, with more specific suggestions given at appropriate places later in the paper. One broad direction is increased attention to the sustainability of earnings, and the inter-temporal relation between earnings and cash flows. Another broad direction is closer attention to the role of standard setting in the determination and quality of earnings. Our survey suggests that standard setting has a first-order effect on the utility of earnings but there is a relative paucity of research that examines this connection. In addition, the evidence leaves little doubt that there is a sharp dissonance between standard setters’ and CFOs’ views on the proper determination of earnings, e.g., the roles of matching and fair value accounting. Research can help to bridge this gap, and more generally these are issues that go to the heart of accounting and affect much wider constituencies, so this is an area with much potential for significant work. Finally, there is considerable potential for further research into the detection of opportunistic earnings management, a topic of much interest to investors, auditors and regulators

Read full article via Earnings Quality: Evidence from the Field — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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