"It was once relatively easy to tell the good guys in accounting from the bad: The late 1960s, for example, brought on an orgy of what one charlatan dubbed 'bold, imaginative accounting' (the practice of which, incidentally, made him loved for a time by Wall Street because he never missed expectations). But most investors of that period knew who was playing games. And, to their credit, virtually all of America's most-admired companies then shunned deception.
"In recent years, probity has eroded. Many major corporations still play things straight, but a significant and growing number of otherwise high-grade managers--CEOs you would be happy to have as spouses for your children or as trustees under your will--have come to the view that it's okay to manipulate earnings to satisfy what they believe are Wall Street's desires. Indeed, many CEOs think this kind of manipulation is not only okay, but actually their duty."
Critics like to cite the aftertax corporate profit series in the National Income and Product Accounts produced by the Bureau of Economic Analysis as a superior alternative to GAAP earnings. The definition of NIPA profits is consistent through time, because the BEA will recalculate past figures to match current methodology. The definition is also "cleaner" because NIPA profits are from current production, obviating any upward bias from asset richening. And finally, there's no incentive for managers to game NIPA profits, because data are only reported in aggregate, with a long lag. In principle, I agree NIPA profits are superior to GAAP.
A common mistake critics and advocates of Shiller P/E alike make is failing to distinguish between the measure itself and the average against which to compare it. There's no rule that states one must use the 130-year average. But by default, many cite the 130-year average, because that's how much data Robert Shiller has assembled.