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Detecting Earnings Management: A New Approach

Journal of accounting research, 2012-05, Vol.50 (2), p.275-334 [Peer Reviewed Journal]

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Title:
Detecting Earnings Management: A New Approach
Author: DECHOW, PATRICIA M. ; HUTTON, AMY P. ; KIM, JUNG HOON ; SLOAN, RICHARD G.
Subjects: Accounting ; Accounting methods ; Accounts receivable ; Accrual basis accounting ; Accruals ; Business accounting ; Cash ; Cash flow ; Correlated omitted variables ; Creative accounting ; Earnings ; Earnings management ; Economic indicators ; Economic models ; Financial accounting ; Financial management ; Financial reporting ; Modeling ; Sales growth ; Studies ; Working capital
Is Part Of: Journal of accounting research, 2012-05, Vol.50 (2), p.275-334
Description: This paper provides a new approach to test for accrual-based earnings management. Our approach exploits the inherent property of accrual accounting that any accrual-based earnings management in one period must reverse in another period. If the researcher has priors concerning the timing of the reversal, incorporating these priors can significantly improve the power and specification of tests for earnings management. Our results indicate that tests incorporating reversals increase test power by around 40% and provide a robust solution for mitigating model misspecification arising from correlated omitted variables.
Publisher: Malden, USA: Blackwell Publishing Inc
Language: English
Identifier: ISSN: 0021-8456
EISSN: 1475-679X
DOI: 10.1111/j.1475-679X.2012.00449.x
CODEN: JACRBR
Source: Alma/SFX Local Collection
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