Explain how estimates and judgments of financial statement preparers can create differences between financial statement information and economic reality.
Answer to relevant QuestionsWhat is the process to carry out an accounting analysis?What is meant by earnings quality? Why do users assess earnings quality? What major factors determine earnings quality?What factors and incentives motivate companies (management) to engage in earnings management? What are the implications of these incentives for financial statement analysis?Distinguish between the permanent and transitory components of income. Cite an example of each, and discuss how each component affects analysis.Announcements of good news or bad news earnings for the recently completed fiscal quarter usually create fairly small abnormal stock price changes on the day of the announcement.Required:a. Discuss how stock price changes ...
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