Assessing Accrual Reliability in Periods of Suspected Opportunism
Open Access
Author:
White, Hal Derric
Graduate Program:
Business Administration
Degree:
Doctor of Philosophy
Document Type:
Dissertation
Date of Defense:
June 08, 2007
Committee Members:
Karl A Muller Iii, Committee Chair/Co-Chair Andrew Leone, Committee Member Henock Louis, Committee Member N Edward Coulson, Committee Member
Keywords:
accruals earnings management cash flows
Abstract:
The earnings management literature relies heavily on accrual expectation models to make inferences about opportunism. However, many have argued that legitimate changes in accruals are often misclassified as opportunism. This paper proposes an alternative approach to detect opportunism by examining shifts in the reliability of the accruals in a suspect period, where reliable accruals fully translate into the cash flows that the accruals purport to represent. A key feature of the model is that accrual levels, rather than changes, are examined as they provide a more complete measure of the estimates included in earnings for the period. Simulation-based tests of the accrual reliability model indicate that it is both reasonably powerful and not susceptible to the same performance-related bias as are conventional discretionary accrual models.
