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Accruals and Deferrals

The Experts below are selected from a list of 15 Experts worldwide ranked by ideXlab platform

Hal D White – 1st expert on this subject based on the ideXlab platform

  • Accruals Deferrals cash flows and earnings articulation implications for earnings management models and a suggested alternative
    , 2012
    Co-Authors: Hal D White

    Abstract:

    This paper discusses the implications of using a change in working capital approach to measure Accruals and the importance of the distinction between Accruals and Deferrals in the context of evaluating extant earnings management models. From this discussion, I develop a cash flow mapping model that builds on the Dechow and Dichev (2002) model. A key feature of the proposed model is that it incorporates accrual balances, rather than changes, as they represent more complete measures of the estimates made by managers during a particular period that directly impact that period’s earnings and have yet to settle up. Model validation tests indicate that the proposed model is roughly two to four times as powerful as extant accrual models in detecting earnings manipulation. Additional tests suggest that the model is also not susceptible to performance-related bias — i.e., a major concern of extant accrual models. The discussion and model development in this paper are meant to provide a potential next step for future research in the accrual manipulation literature.

Erkki K. Laitinen – 2nd expert on this subject based on the ideXlab platform

  • Traditional versus operating cash flow in failure prediction
    Journal of Business Finance & Accounting, 1994
    Co-Authors: Erkki K. Laitinen

    Abstract:

    Prior empirical evidence shows that accrual and cash based flow ratios (traditional and operating cash flows) refer to different financial dimensions. This leads to different predictive abilities in failure prediction. The purpose of this study is to analyse the behaviour of failing and nonfailing firms in terms of Accruals and Deferrals (adjustment entries) to show the distinctive nature of the ratios. This analysis is made conceptually and empirically. The degree and order of the use of adjustment entries is presupposed to depend on four kinds of factors (revenue of expenditure adjustment, direction of adjustment, cost of adjustment, and maximum size of adjustment). The empirical results show that traditional cash flow is a more stable and reliable predictor of failure than operating cash flow. The most important adjustment entries used by failing firms were to decrease inventories and accounts receivable and, in the last phase, to increase accounts payable.

Yasushi Yoshida – 3rd expert on this subject based on the ideXlab platform

  • Dividend Behavior and Pure Accrual Management of Japanese Banks
    SSRN Electronic Journal, 2002
    Co-Authors: Kazuo Kato, Michio Kunimura, Yasushi Yoshida

    Abstract:

    This paper provides some evidence of dividend-motivated earnings management using pure Accruals defined as Accruals and Deferrals (A&D) by Japanese banks under the governmental guideline. This guideline had until August 1992 explicitly limited dividend payments by banks to 40 percent or less of their current net income. A bank with the potential to violate the guideline would increasingly manage its A&D to stay within the upper limits. Bias caused by measurement error and research method seems to remain in our tests. Though, under the comparative study, our empirical results consistently support the direct relationship between earnings management and dividend payment policies of Japanese banks: the magnitude of income increasing A&D management becomes significantly smaller when dividend-driven motivation disappears.