Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

FRS3 and analysts' use of earnings

FRS3 and analysts' use of earnings Abstract This paper examines analysts' use of earnings information and draws implications for the stock market role of the financial reporting regulator. Evidence from participant observation and from interview research suggests that: first, analysts treat the announcement of earnings with immediacy and importance and, further, they make use of the components of FRS3 in extracting a measure of ‘normalised' earnings; second, analysts do not, however, have a rational economic incentive to regard accounting information as their exclusive (or even their primary) focus of interest, and therefore financial statement analysis is not necessarily their core competence; third, analysts’ interpretation and use of earnings information is rather superficial, and there is limited understanding of underlying issues of recognition and measurement, and also of the interactions between earnings and the balance sheet. Overall, the analysis suggests an important role for the financial reporting regulator in compensating for analysts' inherent ‘disinterest’ in accounting. Financial reporting standards must be designed such that their actual content is consistent with the analysts' (uninformed) expectations of this content, otherwise the analysts' limited understanding will generate false assumptions and, thereby, unintended real effects on share prices. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting and Business Research Taylor & Francis

FRS3 and analysts' use of earnings

Accounting and Business Research , Volume 30 (2): 15 – Mar 1, 2000
15 pages

Loading next page...
 
/lp/taylor-francis/frs3-and-analysts-apos-use-of-earnings-5Cb39128cc

References (66)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
2159-4260
eISSN
0001-4788
DOI
10.1080/00014788.2000.9728928
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper examines analysts' use of earnings information and draws implications for the stock market role of the financial reporting regulator. Evidence from participant observation and from interview research suggests that: first, analysts treat the announcement of earnings with immediacy and importance and, further, they make use of the components of FRS3 in extracting a measure of ‘normalised' earnings; second, analysts do not, however, have a rational economic incentive to regard accounting information as their exclusive (or even their primary) focus of interest, and therefore financial statement analysis is not necessarily their core competence; third, analysts’ interpretation and use of earnings information is rather superficial, and there is limited understanding of underlying issues of recognition and measurement, and also of the interactions between earnings and the balance sheet. Overall, the analysis suggests an important role for the financial reporting regulator in compensating for analysts' inherent ‘disinterest’ in accounting. Financial reporting standards must be designed such that their actual content is consistent with the analysts' (uninformed) expectations of this content, otherwise the analysts' limited understanding will generate false assumptions and, thereby, unintended real effects on share prices.

Journal

Accounting and Business ResearchTaylor & Francis

Published: Mar 1, 2000

There are no references for this article.