| Financial reporting quality | |
| Low | High |
| Low quality reports contain information that is pure fabrication. | High-quality reports contain information that is relevant, complete, neutral, and free from error. |
| Low financial reporting quality impedes assessment of earnings quality and impedes valuation. | High financial reporting quality enables assessment. |
| Earnings (results) quality | |
| Low | High |
| Low earnings quality is unsustainable. | High earnings quality increases company value.
High earnings quality is sustainable. |
From an investor’s perspective, the overall quality of financial reports, that is combining reporting quality and earnings quality, can be thought of as a continuous spectrum ranging from highest to lowest as depicted in the diagram below:
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