Quality Of Earnings For Major Corporations

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This paper examines the quality of earnings for major corporations. The quality of earnings is an ongoing operation of corporations and other business alike, because the value of a business is the current and future earnings of the firm (Schroeder et al, 2011). These earnings are usually updated quarterly by a firm’s financial analyst, which provide this for investors and other users of financial information to make decisions about a firm’s financial position in the market. However, there are some differences in the quality of earnings throughout various industries, countries and by competitors. This paper evaluates the quality of earnings for one major corporation for an assessment of its current and future earnings.…show more content…
The Sarbanes – Oxley Act of 2002 (SOX), Section 404 plays an important role in a firm’s earnings quality, reliability and relevance (Singer & You, 2011). Additionally, they stated that the implementation of the regulation helped firms reduce intentional misstatements and contributes to the earnings reliability. During the process of evaluating the quality of earnings, there are some warning signs that should be considered, in order to detect potential fraud or misstatement. These warning signs will be discussed further, later in this paper. First, the quality of earnings will be discussed. Second, the analysis of a major corporation to measure its quality of earnings. Lastly, warning signs will show vulnerable areas where financial data can be manipulated. Prior to the measurements of quality of earnings, there are two definitions that should be recognized; earnings quality and earnings management. • Earnings quality identifies the relationship between an entity’s accounting income and its economic income, which is attributable to high sales and low costs (Schroeder et al, 2011). • Earnings management is an attempt to use accounting techniques to produce financial reports and present an overall positive financial position for a firm. Case 5 – 2 Earnings Quality a. Schroeder et al (2011), provided a list of ideal measurements for discussing earnings quality. These measurements are used by a firm’s accounting professionals and financial users to assess
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