Financial Reporting and Analysis IV

Reading 29. Financial Reporting Quality

Learning Outcome Statements

a. distinguish between financial reporting quality and quality of reported results (including quality of earnings, cash flow, and balance sheet items);

CFA Curriculum, 2020, Volume 3

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Subject 1. Reporting Quality and Results Quality

Financial reporting quality: a subjective evaluation of the extent to which financial reporting is free of manipulation and accurately reflects the financial condition and operating success of a company. It pertains to the information disclosed.

Earnings are considered to be high quality if they exhibit persistence and are unbiased. Sustainable earnings enable better forecasts of future cash flows or earnings. This is referred to as results quality or earnings quality.

Financial reporting quality is different from earnings quality. The two concepts are, however, interrelated because a correct assessment of earnings quality is possible only if we have some basic level of financial reporting quality. Low financial reporting quality makes it hard to assess earnings quality.

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User Contributed Comments 4

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sahilb7

High Earnings Quality = Better forecasting

Wassimes95

thanks sahilb

khalifa92

High reporting quality - High earnings quality
High reporting quality - Low earnings quality
Low reporting quality - Low earnings quality

Freddie33

Khalifa are you just trying to confuse people?