An Alternative Measure to Detect Intentional Earnings Management through Discretionary Accruals

This study proposes an alternative measure of discretionary accruals that can be used in testing for intentional earnings management. Prior research has shown the prevalence of measurement error in all models used to estimate discretionary accruals (Healy (1985), DeAngelo (1986), Jones (1991) and modified Jones models (Dechow et al., 1995). The alternative measure proposed relies on the premise that managers use one or more components of accruals (accounts receivable, inventories, accounts payable, other working capital and depreciation) to manipulate bottom-line income in a given direction, consistent with their incentives. In other words, components of discretionary accruals…

Author: Ibrahim, Salma Samir

Source: University of Maryland

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