Earnings occupy a central position in accounting. It is accounting's summary measure of a firm's performance. Despite theoretical models that value cash flows, accounting earnings is widely used in share valuation and to measure performance in management and debt contracts. Various explanations have been advanced to explain the prominence of accounting earnings and the reasons for its usage. An example is that earnings reflects cash flow forecasts (., Beaver, 1989, p. 98; and Dechow, 1994) and has a higher correlation with value than current does cash flow (., Watts, 1977; and Dechow, 1994). In this paper we discuss the use of.
