Errors in Estimating Accruals: Implications for Empirical Research

Topics:
Financial Statements,
Payables and Receivables
Tags:
Accrual,
Balance Sheet,
Balance Sheets,
Earnings Management,
Finance,
Financial Accounting,
Financial Statements,
Operational Accounting,
University Of Iowa
Source:
University of Iowa

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Overview: This paper examines the impact of measuring accruals as the change in successive balance sheet accounts, as opposed to measuring accruals directly from the statement of cash flows. The primary finding is that studies using a balance sheet approach to test for earnings management are potentially contaminated. In particular, if the partitioning variable used to indicate the presence of earnings management is correlated with the occurrence of mergers and acquisitions or discontinued operations, researchers are likely to erroneously conclude that earnings management exists when there is none. Additional results show that the bias in balance sheet accrual estimation can confound returns regressions where discretionary and non-discretionary accruals are used as explanatory variables.

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Format: HTML | Date: Jul 2000 | Pages: 1

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