In his 1970 research, Beaver emphasized the importance of studying the time series behavior of earnings in accounting and finance. As key components of this field, income smoothing, forecast ability and interim reporting were also explored by Beaver (1970: pp. 62). Despite varying in their predictive purposes, these studies acknowledge the significance of understanding the underlying process of generating accounting earnings (Beaver 1970).
According to Beaver (1970: pp. 64), the studies collectively present diverse models, and the results regarding these models seem to be contradictory or paradoxical. Beaver (1970) describes a significant portion of accounting research as focusing on identifying potential measurement errors in accounting data, especially in accounting earnings. However, without understanding the data creation process, it is impossible to gain insight into the measurement errors (Beaver 1970).
The accounting system (Beaver 197
...0) provides one mapping of wealth changes, while security prices and returns reflect another mapping that is influenced by underlying events.
Despite the current lack of understanding regarding the decision-making procedures of accounting data users, there is consensus that projecting the future profitability of a company (or its securities) is a frequently used decision model (Beaver 1970). However, having knowledge about the underlying process is essential to develop an effective forecasting system, and without it, generating accurate earnings observations is hindered (Beaver 1970).
A preliminary study by Beaver (1970) aimed to investigate the statistical properties of time series data on earnings variables. The analysis was divided into three stages: (1) investigation, (2) model selection and fitting, and (3) application (Granger and Hatanaka, cited in Beaver 1970). Reference: Beaver, WH 1970, 'The Time Series Behavior of Earnings', Journal of Accounting Research
Vol. 8, Empirical Research in Accounting: Selected Studies, pp. 62-99, accessed 8 August 2010, from <website> and Report', The CPA Journal, November 2005 Issue, accessed 15 August 2010, from ;website;.
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