Have you seen any good quarterly statements lately?

Abstract

T he most accurate way to measure the results of a business enterprise would be to measure it when the firm is finally liquidated. Unfortunately, however, the demand for timely information about a firm’s economic progress by investors necessitates measurement over some arbitrary time period, thereby requiring the estimation of accruals and deferrals to provide a proper picture of economic progress. The shorter the time interval, the more likely that the economic information about a firm’s economic progress will be misleading as a consequence of problems of estimation. Public companies release annual and quarterly financial statements. The latter statements are referred to as interim reports. Even though annual reports are audited by independent accountants, many observers have questioned the quality and reliability of the reported earnings. Graber and Jarnagin, for example, argue that corporate management has sufficient leeway to manipulate reported earnings.’ The possibility of income manipulation is greater for interim statements, since interim reporting standards are more flexible than annual and allow management discretion to accrue or defer expenses over the quarters. Consequently, critics contend that quarterly statements are inaccurate and unreliable.2 In spite of these limitations, there is ample empirical evidence to indicate that quarterly earnings play an important role in the resource allocation decisions made by investor^.^ In September 1975, the Securities and Exchange Commission issued Accounting Series Release No. 177.4 One of the requirements specified in the release was that certain registrants must disclose selected quarterly data in an unaudited note to the annual financial