Accounting Theory Earnings Persistence Persuasive Essay Example
Part A: Summary & Referencing Exercise Due to the implications for related research in areas of accounting and finance, the time series behavior of earnings is important for empirical studies (Beaver 1970). Beaver (1970: pp. 62) discussed issues such as income smoothing, the relative forecast ability of different income measurements, and interim reporting. These studies all depend on understanding the process that creates accounting earnings, even though they cover a wide range of predictive contexts (Beaver 1970).
According to Beaver (1970: pp. 64), the studies collectively provide different models and their corresponding findings, which appear to be conflicting or paradoxical. Beaver (1970) states that a significant portion of accounting research focuses on identifying potential measurement errors in accounting data, especially in accounting earnings. Understanding the process behind the information is crucial for gaining insight into the mea
...surement errors (Beaver 1970).
The accounting system and security prices/returns are two different ways of measuring wealth changes. However, there is limited evidence of a relationship between them (Beaver 1970). Evaluating earnings can be challenging because companies present various earnings figures (Bellovary, Giacomino and Akers 2005). Additionally, the income statement alone is not effective for predicting future earnings (Bellovary, Giacomino and Akers 2005).
Although there is limited understanding regarding how users of accounting data make decisions, it is generally acknowledged that forecasting future profitability of a company or its securities is a common aspect of many decision models (Beaver 1970). In order to create an optimal forecasting system, it is imperative to have knowledge of the underlying process, as the forecasting process relies heavily on generating earnings observations (Beaver 1970). As a result, a study was conducted t
preliminarily examine the statistical properties of time series observations on earnings variables (Beaver 1970).
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