You are considering purchasing shares in Telstra. From your accounting knowledge you know it is important to look at how Telstra earns an income, not just how much it earns because Telstras total profit after tax can be deceiving. It could be overstated because of a profit from the sale of property or because of a tax accounting anomaly. Hence, a record profit this year could lead you to miss the past three years of losses.

A) Explain the three criteria you would consider in assessing Telstras earnings quality.

B) Outline the advantages to a company from having high quality earnings.