164 WILLIAM H. BEAVER As a ﬁrst step in implementing the concept of comprehensive income, this State- ment requires that all items that meet the deﬁnition of components of comprehensive income be reported in a ﬁnancial statement for the period in which they are recog- nized. One can interpret the requirement for an explicit statement reconciling such items as a political solution and a compromise to reporting comprehensive income in the income statement. However, the analysis in this paper provides a rationale for the separate treatment of transitory components of earnings. My earlier research (Beaver, 1981) also reﬂects some interest in the nature of transitory earnings. Events occurring within a particular period may be atypical (transitory) and not expect to have the same impact on earnings in subsequent periods. Accounting earnings can be viewed as two components: permanent earnings and transitory earnings. Permanent accounting earnings can be thought of as the expected value of future accounting earnings. (105) As stated, this deﬁnition is vague and lacks the precision and formality of treatment provided by the Ohlson model. At best, it provides an intuitive notion of transitory earnings, which helps to explain why the relation between earnings changes and price
Review of Accounting Studies – Springer Journals
Published: Sep 30, 2004
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