Identify and describe the two primary factors that impact earnings quality

What will be an ideal response?

Answer: The two factors that impact earnings quality are (1) the nature of earnings and (2) management discretion allowed by the accounting standards.
1. Earnings quality is dependent upon whether the components of earnings presented are permanent or transitory in nature.
2. Management will sometimes engage in earnings management by using the discretion afforded under the accounting standards to manipulate earnings to meet desired goals.