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The theoretical development of the residual income model relies on the clean surplus relation, or that all changes in book value are caused by either
The theoretical development of the residual income model relies on the "clean surplus relation," or that all changes in book value are caused by either current earnings that are retained in the firm or dividends that are paid out. What transactions cause a violation to this relationship under U.S. GAAP? Should U.S. GAAP alter accounting standards to move closer to this clean surplus relationship? Why or why not?
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