Financial Reporting and Earnings Quality

Financial Reporting Quality and Earnings Quality

Impact of Financial Reporting Quality on Assessment and Valuation

• Low Financial Reporting Quality:
  • Impedes assessment of earnings quality.
  • Impedes valuation.
  • The information provided is of little use in assessing the company's performance.
  • Hinders effective investment and other decisions.
• High Financial Reporting Quality:
  • Enables assessment.

Impact of Earnings Quality on Company Value

• High Earnings Quality:
  • Increases company value.
• Low Earnings Quality:
  • Decreases company value.

Relationship Matrix

• High Financial Reporting Quality + High Earnings Quality = Increased Company Value
• High Financial Reporting Quality + Low Earnings Quality = Decreased Company Value
• Low Financial Reporting Quality = Impedes assessment of earnings quality and valuation; the information provided is of little use in assessing the company's performance, and thus in making investment and other decisions.