The relative information content of accruals and cash flows: combined evidence at the earnings announcement and annual report release date

Article Abstract:

The information content of two accrual variables, current accruals and non-current accruals, is examined. These two variables are central to the debate in accounting circles regarding the reliability and relevance of earnings reported using the accrual method. The relative information content of total accruals and cash from operations is investigated. The results of the study indicate that the accrual and funds components have an information content beyond earnings statements, and that accrual component has an information content beyond the funds component. A discussion of the results by Patricia C. O'Brien is included.

Financial statements

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Evidence of earnings management from the provision for bad debts

Article Abstract:

A proxy is developed for discretionary accruals and for determining if income-decreasing accruals are chosen when income is abnormally low or high. The developed proxy is less likely to promote results bias and more powerful than prior proxies. The results indicate that: companies choose income-decreasing accruals when income is extreme in order to manage their earnings; and that the highest and lowest deviations from the earnings benchmark showed more income-reducing residual provisions than for earnings closer to the benchmark. A discussion by Linda DeAngelo is included.

Accrual basis accounting, Bad debts

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The association of operating cash flow and accruals with security returns

Article Abstract:

An operating cash flow variable is constructed using comparative balance sheet data and income statements. The ability of operating cash flow and accrual data to explain changes in equity values is assessed through the use of an association methodology. The results indicate that abnormal returns are associated with both operating cash flows and aggregate accruals. A discussion of the results by Ross Jennings is included.

Profit, Profits

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