Financial Reporting Quality: A Review of Its Applications and Measurements

This is the authors' abstract. We don't add key points for this paper.

This study extensively examines various proxies used to capture financial reporting quality (FRQ), a critical factor in ensuring transparency in financial markets and maintaining robust corporate governance. Via conducting a comprehensive review of popular proxies from previous literature, the study emphasises the importance of FRQ in fostering investor confidence, supporting effective decision-making and enhancing overall financial market efficiency. The research systematically compares several models used to calculate discretionary accruals, a widely recognised proxy for earnings management. In doing so, it identifies the modified Jones model, developed by Dechow et al. (1995), and the performance-matched model, introduced by Kothari et al. (2005), as two of the most effective proxies for measuring FRQ. Furthermore, the study suggests that the performance-controlled model should be re-tested to ensure its theoretical consistency with the modified Jones model, potentially improving its applicability in future empirical research. Ultimately, this study contributes to the ongoing development of robust methodologies for accurately assessing FRQ and enhancing financial reporting standards. KEYWORDS Accruals model, corporate governance, discretionary accruals, earnings management, earnings persistence, market efficiency