AB

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.