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The CPA Journal

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Earning's quality is an important aspect of evaluating an entity's financial health, yet investors, creditors, and other financial statement users often overlook it. Earnings quality refers to the ability of reported earnings to reflect the company's true earnings, as well as the usefulness of reported earnings to predict future earnings. The SEC and the investing public are demanding greater assurance about the quality of earnings. There is significant need for the development of a uniform definition and a consistent model to measure earnings quality. An Earnings Quality Assessment (EQA) is a proposed model that is consistent with this definition. The EQA recognizes many of the fragilities of GAAP, and takes into account factors that are expected to affect future earnings but that are not explicitly disclosed in the financial statements. Auditors' EQA reports will provide higher-quality information to financial statement users and meet the SEC's demand for greater assurance about the reliability of earnings figures.


Published version. The CPA Journal, Vol. 75, No. 11 (November 2005). Permalink. Reprinted from The CPA Journal, November 2005, © 2005, with permission from the New York State Society of Certified Public Accountants.

The author of this document, Jodi L. Gissel, published under the name Jodi L. Bellovary at the time of publication.

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