Foundations and Trends® in Accounting > Vol 3 > Issue 2–3

Line-Item Analysis of Earnings Quality

Nahum D. Melumad, Columbia Business School, Columbia University, USA, ndm4@columbia.edu Doron Nissim, Columbia Business School, Columbia University, USA, dn75@columbia.edu
 
Suggested Citation
Nahum D. Melumad and Doron Nissim (2009), "Line-Item Analysis of Earnings Quality", Foundations and Trends® in Accounting: Vol. 3: No. 2–3, pp 87-221. http://dx.doi.org/10.1561/1400000010

Published: 30 Apr 2009
© 2009 N. D. Melumad and D. Nissim
 
Subjects
Financial statement analysis and equity valuation,  Financial reporting
 
Keywords
Earnings qualityEarnings managementFinancial statement analysis
 

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In this article:
1. Introduction
2. Overview of Earnings Quality
3. Overview of Earnings Management
4. Revenue
5. Accounts Receivable
6. Inventory
7. Property, Plant and Equipment
8. Intangible Assets
9. Investments in Debt Securities
10. Debt
11. Leases
12. Income Taxes
13. Pension and Other Post-Retirement Benefits
14. Contingencies
15. Other Liabilities
16. Derivatives
17. Investment in Equity Securities and Variable Interest Entities
18. Shareholders' Equity
19. Concluding Comments
References

Abstract

In this paper, we discuss earnings quality and the related concept of earnings management, focusing on the primary financial accounts. For each key line-item from the financial statements, we summarize accounting and economic considerations applicable to that item, discuss implications for earnings quality, evaluate the susceptibility of the item to manipulation, and identify potential red flags. The red flags and specific issues discussed for the individual line-items provide a framework for fundamental and contextual analysis by academic researchers and practitioners.

DOI:10.1561/1400000010
ISBN: 978-1-60198-212-4
148 pp. $99.00
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ISBN: 978-1-60198-213-1
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Table of contents:
1. Introduction
2. Overview of Earnings Quality
3. Overview of Earnings Management
4. Revenue
5. Accounts Receivable
6. Inventory
7. Property, Plant and Equipment
8. Intangible Assets
9. Investments in Debt Securities
10. Debt
11. Leases
12. Income Taxes
13. Pensions and Other Post-Retirement Benefits
14. Contingencies
15. Other Liabilities
16. Derivatives
17. Investments in Equity Securities and Variable Interest Entities
18. Shareholder Equity
19. Concluding Comments
References

Line-item Analysis of Earnings Quality

Line-Item Analysis of Earnings Quality provides a comprehensive summary and analysis of the specific earnings quality issues pertaining to key line item components of the financial statements.

After providing an overview of earnings quality and earnings management, Line-Item Analysis of Earnings Quality analyzes key line items from the financial statements. For each key line item, the authors: review accounting principles; discuss implications for earnings quality; evaluate the susceptibility of the item to manipulation; describe analyses and red flags which may inform on the item's quality.

Line-Item Analysis of Earnings Quality will prove useful in conducting fundamental and contextual analyses through its analysis and evaluations.

 
ACC-010