As transitory components become a more important part of a firm's reported earnings,the reported earnings are more quality-enhanced.

Question

Quizplus · Accepted Answer

Transitory components refer to temporary factors that can impact a firm's earnings but may not be sustainable over the long term. While including transitory components in reported earnings can boost short-term profitability, it can also make it difficult for investors to evaluate a firm's true earnings potential. Therefore, relying heavily on transitory components can actually reduce the quality of reported earnings.

As Transitory Components Become a More Important Part of a Firm's