From the course: Financial Accounting Part 1

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The market value of accounting adjustments

The market value of accounting adjustments

From the course: Financial Accounting Part 1

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The market value of accounting adjustments

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- Accountants are proud of the set of accrual accounting rules they have developed over the years. - According to accountants, when these rules are applied to raw cash flow data the resulting net income number provides a superior measure of a company's performance. - Some financial analysts and many finance professors have long been skeptical about the value of accrual accounting. - These skeptics contend that an investor is better off analyzing a company using cash flow data because the accounting rules distort a company's reported performance. - Three accounting professors decided to test the validity of these challenges to the usefulness of accrual of accounting. - Two of these professors, Professors Biddle and Bowen, were at the University of Washington, your alma mater. - They were. Correct, Professors Biddle, Bowen, and Wallace constructed statistical tests to determine which performance measure, accrual…

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