Earning\u27s quality is an important aspect of evaluating an entity\u27s 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\u27s true earnings, as well as the usefulness of reported earnings to predict future earnings. The SEC and the investing public are demanding greater assurance about the quality of earnings. There is significant need for the development of a uniform definition and a consistent model to measure earnings quality. An Earnings Quality Assessment (EQA) is a proposed model that is consistent with this definition. The EQA recognizes many of the fragilities of GAAP, and takes into account factors that are expected to affect future earnings but that are not explicitly disclosed in the financial statements. Auditors\u27 EQA reports will provide higher-quality information to financial statement users and meet the SEC\u27s demand for greater assurance about the reliability of earnings figures
