Discussion of “On Transitory Earnings”

Discussion of “On Transitory Earnings” 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 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “On Transitory Earnings”

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1009621831537
Publisher site
See Article on Publisher Site

Abstract

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

Journal

Review of Accounting StudiesSpringer Journals

Published: Sep 30, 2004

References

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