Persistence Persistence of the reported earning is commonly used measure of

Persistence persistence of the reported earning is

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Persistence Persistence of the reported earning is commonly used measure of earnings quality which is measured by the sustainability of the reported earnings of firm. Earnings which are more persistent are more sustainable and are of high quality; likewise earnings which are less persistent are more transitory are considered to be of lower quality. To know whether the above methods, techniques is consistent with past years and comparable with other company in same industry. 3. Obtain an annual report for a large corporation and perform a quality of earnings assessment. The financial statements of Enron Corporation in 2000 have been picked as I want to see how the company became notorious for its accounting fraud and created an illusion of a solidly performing company. Analysis The trend in Enron’s operating income compare with the trend in its income after other income and deductions (i.e., Income before interest, minority interests, and income taxes) Enron’s operating income varied dramatically from year to year, declining from 1998 to 1999 and then more than doubling in 2000. In contrast, Enron’s income before interest, minority interests, and income taxes show a smooth, upward trend with significant increases each year. The increases were 24% and 26% for 2000 and 1999 relative to 1999 and 1998, respectively. Items appear to be non-recurring as opposed to being a result of routine operations Items that appear to be non-recurring are gains on sales of non-merchant assets and the gain on the issuance of stock by TNPC. Although gains from sales of non-merchant assets do recur in each year, this
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  • Spring '17
  • Generally Accepted Accounting Principles

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