Earnings Quality as a Key Point of Corporate Governance

Earnings quality is an important aspect of evaluating an entity’s financial health, yet investors, creditors, and other financial statement users often overlook it. Earnings quality refers to the ability of reported earnings to reflect the company’s true earnings, as well as the usefulness of reported earnings to predict future earnings. Earnings quality also refers to the stability, persistence, and lack of variability in reported earnings. The goal of the research is to identify factors influencing quality of the reported earnings, to develop an earnings quality assessment model based on these factors and to test the model’s validity and reliability applying it in practice. The main problem which was solved in the course of the research was to interconnect accounting methods, used for preparing financial statements as a way to link the “quality” of reported earnings and financial health of the organization. The main restriction is that research was conducted for private companies. The methods chosen for conducting the research were: literature exploring, analysis, comparison, modeling, method of expert evaluation