Measures of Corporate Earnings: What Number is Best?

Revelations of corporate fraud in 2002 shook the public’s confidence in financial reporting and led to calls for reform. Without credible, transparent, and comparable financial information, investors, auditors, and others cannot make decisions that are essential to the efficient functioning of the economy. But while rules can be improved, it is not possible to achieve a rigid standard that applies uniformly to every company. This Economic Commentary explains why.