The Relationship between Financial Reporting Models and Earnings Attributes

Objective: In recent years, and following the financial disclosures of some large companies, the issue of earnings characteristics has received special attention. Financial analysts and investors do not only pay attention to the accounting profit figure as the sole determinant in determining future cash flows, but the sustainability and repeatability of the reported earnings is also very important to them. More than the final earnings figure, they refer to the items that make up real earnings, usefulness in predicting future earnings, as well as the stability, sustainability, and immutability of reported earnings. Earnings is one of the most important factors affecting economic decisions, users' awareness of the reliability of earnings can help them make better decisions about profitability and financial statement analysis. This study examined the relationship between financial reporting models and earnings characteristics of companies listed on the Tehran Stock Exchange.

Methodology: The present study is applied in terms of purpose. In the present study, the required data have been extracted from Rahavard Novin software, financial statements of companies and text mining as well as the Codal website. The statistical population of the present study is companies listed on the Tehran Stock Exchange during 2012-2022 and the software used to prepare the data and estimate the models is Stata 14. The panel data model was used to test the research hypotheses.

Findings: The results of this study show that the net assets approach has a negative effect on the quality of accruals. The net assets approach has a positive effect on income smoothing. The net assets approach has a negative effect on earnings predictability. The net assets approach has no effect on earnings sustainability. The transactional approach has a positive effect on the quality of accruals. The transactional approach has no effect on income smoothing. The transactional approach has no effect on earnings predictability. The transactional approach has a negative effect on earnings sustainability.

Conclusion: This study has considered earnings characteristics in four perspectives: accruals quality, income smoothing, earnings predictability, and earnings sustainability. Accruals quality associates accruals with past, present and future cash flows, and then tests them. This criterion (which they called accruals quality) is related to debt cost and equity cost. Earnings sustainability indicates the stability and persistence of earnings. Since management cannot meet all the needs of financial statement users, this problem increases the degree of reliance on financial information as the output of companies, so the importance of earnings quality before any decision making is important, and the higher the earnings quality, the better the performance of companies will be. For reasons such as retention in the company, bonus receipt, and other factors, the manager consciously or unconsciously presents the status of the company as favorable; therefore, the characteristics of corporate earnings are influenced by the foundations of reporting and the discretion of their managers. The less reliable earnings are, the less useful information they provide.