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American Accounting Association

Quality of Earnings Project

Earnings Quality Topics at the 2003 Annual Meeting

Designed to support faculty development in both research and teaching, the AAA's Quality of Earnings Project has included developing new research and teaching resources, opportunities for publication in association-wide journals, The Accounting Review research conference, continuing education offerings, and links to resources. Now completed, the project generated resources useful to accounting educators and practitioners and sparked attention to issues of earnings quality in accounting research and education.

Quality of Earnings issues of AAA association-wide journals

Special issue of Accounting Horizons
Devoted to scholarship and commentaries related to earnings quality, the special issue of Accounting Horizons (Volume 17, Supplement 2003), edited by guest editor Patricia M. Dechow, includes:

  • "Does Big 6 Auditor industry Expertise Constrain Earnings Management?" by Gopal V. Krishnan
  • "How Are Earnings Managed? Examples from Auditors," by Mark W. Nelson, John A. Elliott, and Robin L. Tarpley
  • "Investors’ Perceptions of Earnings Quality, Auditor Independence, and the Usefulness of Audited Financial Information," by Frank D. Hodge
  • "Earnings Quality and Short Sellers," by Scott Richardson
  • "Measuring Stockholder Materiality," by Seong-Yeon Cho, Robert L. Hagerman, Sandeep Nabar, and Evelyn R. Patterson
  • "The Quality of Financial Statements: Perspectives from the Recent Stock Market Bubble," by Stephen H. Penman
  • "Earnings Quality," by Katherine Schipper and Linda Vincent
  • "Are Unmanaged Earnings Always Better for Shareholders?" by Anil Arya, Jonathan C. Glover, and Shyam Sunder
  • "Accounting Quality, Auditing, and Corporate Governance," Eugene A. Imhoff, Jr.

Special issue of The Accounting Review
Papers chosen for presentation at The Accounting Review Conference (January 24–26, 2002) comprise a special issue of The Accounting Review (Volume 77, Supplement 2002), edited by Katherine Schipper:

  • "The Balance Sheet as an Earnings Management Constraint," by Jan Barton and Paul J. Simko
  • "The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors," by Patricia M. DeChow and Ilia D. Dichev
  • "The Relation between Auditors’ Fees for Nonaudit Services and Earnings Quality," by Richard M. Frankel, Marilyn F. Johnson, and Karen K. Nelson
  • "Empirical Evidence on the Evolution of International Earnings," by Judy Land and Mark H. Lang
  • "Evaluating Financial Reporting Quality: The Effects of Financial Expertise versus Financial Literacy," by Linda McDaniel, Roger D. Martin, and Laureen A. Maines
  • "Evidence from Auditors about Managers’ and Auditors’ Earnings-Management Decisions," by Mark W. Nelson, John A. Elliott, and Robin L. Tarpley

Quality of Earnings issue of Issues in Accounting Education
This issue features an article and seven instructional resources focused on earnings quality. Edited by Thomas P. Howard, the issue is Volume 17, Number 4, November, 2002:

  • "Quality of Earnings: An Introduction to the Issues in Accounting Education Special Issue," by Walter R. Teets
  • "Earnings Quality Assessment by a Sell-Side Financial Analyst," by Bart Kamp
  • "Interstate Transport, Inc.: A Case Study in Earnings Management," by Robert J. Sack
  • "TechMall.com: Revenue Recognition in the Internet Economy," by Monte R. Swain, Robert D. Allen, David M. Cottrell, and Kyle Pexton
  • "Quality of Earnings and Accounting Estimates: A Case of Decisions," by James R. Duncan
  • "The Quality of Earnings in the Information Age," by Paul M. Clikeman
  • "Zar, Inc.: A Case in Earnings Quality," by Jimmy W. Martin
  • "Grey Paints: Using Earnings Quality Concepts to Clarify the Earnings Measurement Process," Jerry G. Kreuze and Jack M. Ruhl

Overview of Completed Projects

The Accounting Review Conference
Held January 24–26, 2002, the purpose of The Accounting Review conference was to provide fresh insights into questions of how incentives, judgments, and expertise combine with accounting and auditing standards and securities regulations to affect the quality of reported earnings and, where possible, to develop the implications of those insights for the key constituencies of financial reporting. The conference included research on earnings quality and earnings management, broadly construed, and papers using analytical, empirical-archival, experimental, and field study approaches were considered. Grace Pownall, Goizueta Business School, Emory University, served as Program Chair for the conference held at Emory University.

CPE Opportunities
Previous Annual Meeting CPE Series:

  • Strategies and Tips for Leading Case Discussion – G. Peter Wilson, Boston College
  • Using Cases to Teach Earnings Quality and Earnings Management – Eric Hirst, The University of Texas at Austin and Galen Sevcik, Georgia State University
Earlier Region CPE series:
Several AAA Region Meeting CPE sessions were conducted by project coordinators.

Related Association Projects
AICPA Quality of Earnings Case Study Collection
The AICPA created a collection of cases in Harvard Business Review style with case content presented as a dialogue of senior executives in the company, followed by commentary from experts with different perspectives on the challenges executives face. The solutions to the cases highlight the complexity and interrelatedness of various accounting and internal control issues.

Financially Correct, with Ben Stein
The Financial Accounting Standards Board (FASB) developed Financially Correct, a video program produced to help educate the public about why high-quality financial reporting is so important to investors and the efficiency of the financial markets. [No longer available.]

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