Discretionary Accounting Choices and the Predictive Ability of Accruals with Respect to Future Cash Flows

Badertscher, Brad A.; Collins, Daniel W.; Lys, Thomas Z.

doi:10.2139/ssrn.1021030

Cited by 103 publications

(72 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…The results of the survey have confirmed that accrual accounting could contribute on both the level of responsiveness as well as the quality of information. The results of this survey are consistent with earlier findings on the literature (Badertscher et al, 2012;Becker et al, 2013;Azmi & Mohamed, 2014).…”

Section: Resultssupporting

confidence: 92%

“…In the cash method of accounting, on the other hand, cash receipts and disbursements technique of accounting or cash accounting records revenue when cash is earned, and expenses when they are paid in cash. There are different advantages on using accrual accounting such as incremental of information (Bowen et al, 1987;Badertscher et al, 2012;Salleh et al, 2014) and many firms have recently joined to use such accounting system (Guthrie, 1998). There have been also an increasing numbers of debates between adoptions of cash accounting versus accrual accounting in government accounting.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Application of accrual accounting in Iran municipalities

Maghariee¹,

Neghabi²,

Abdi³

2015

10.5267/j.msl

View full text Add to dashboard Cite

Accrual accounting is a technique for recognizing expenses when incurred and revenue when earned rather than when payment is made or received. In the cash method of accounting, on the other hand, cash receipts and disbursements technique of accounting or cash accounting records revenue when cash is earned, and expenses when they are paid in cash. In this paper, we present an empirical investigation to study the effect of implementing accrual accounting in municipality of Amol, Iran. The survey investigates whether or not financial reporting based on accrual accounting compared with a cash basis could provide a better method for promoting accountability. Using, regression analysis, the study compares the performance of accrual accounting versus cash accounting and the results have indicated that accrual accounting could improve the performance of accounting in municipality system. In addition, the study has examined whether or not converting cash to accrual accounting basis in municipalities could improve qualitative characteristics of accounting information. To examine this hypothesis, the study has designed a questionnaire in Likert scale to measure the quality of information and, using some statistical tests, the survey has concluded accrual accounting indeed provided better quality characteristics information.Growing Science Ltd. All rights reserved. 5

show abstract

Section: Resultssupporting

confidence: 92%

Section: Introductionmentioning

confidence: 99%

Application of accrual accounting in Iran municipalities

Maghariee¹,

Neghabi²,

Abdi³

2015

10.5267/j.msl

View full text Add to dashboard Cite

show abstract

“…These models are used both to develop expected cash flows (Dechow et al 1998;Roychowdhury 2006;Kim and Park 2014) and to determine whether accounting measures predict cash flows (Barth et al 2001;Givoly et al 2009;Badertscher et al 2012). We investigate whether the cash flow classification choices have different implications for the prediction of future cash flows.…”

Section: Consequences: Models Of Ocf Predictionmentioning

confidence: 99%

Flexibility in cash-flow classification under IFRS: determinants and consequences

et al. 2017

View full text Add to dashboard Cite

International Financial Reporting Standards (IFRS) allow managers flexibility in classifying interest paid, interest received, and dividends received within operating, investing, or financing activities within the statement of cash flows. In contrast, U.S. Generally Accepted Accounting Principles (GAAP) requires these items to be classified as operating cash flows (OCF). Studying IFRS-reporting firms in 13 European countries, we document firms' cash-flow classification choices vary, with about 76, 60, and 57% of our sample classifying interest paid, interest received, and dividends received, respectively, in OCF. Reported OCF under IFRS tends to exceed what would be reported under U.S. GAAP. We find the main determinants of OCF-enhancing classification choices are capital market incentives and other firm characteristics, including greater likelihood of financial distress, higher leverage, and accessing equity markets more frequently. In analyzing the consequences of reporting flexibility, we find some evidence that the market's assessment of the persistence of Rev Account Stud (2017)

show abstract

“…4 See Dechow et al (2010, 364-366) for an overview of the mixed and mostly indirect evidence on the earnings management explanation. Badertscher et al (2012) examine restatement firms that have likely managed earnings and find no evidence of elevated discretionary accruals for the 0 and ?1 cent earnings surprise bins. Moreover, they conclude: ''Roughly 55 % of the observations where earnings are deemed to be opportunistically managed do not fall into the zero or just beat (0.01) earnings surprise bins that are typically used to infer earnings management.…”

Section: Introductionmentioning

confidence: 99%

Analyst information precision and small earnings surprises

Bissessur

Veenman

2016

Rev Account Stud

View full text Add to dashboard Cite

This study proposes and tests an alternative to the extant earnings management explanation for zero and small positive earnings surprises (i.e., analyst forecast errors). We argue that analysts' ability to strategically induce slight pessimism in earnings forecasts varies with the precision of their information. Accordingly, we predict that the probability that a firm reports a small positive instead of a small negative earnings surprise is negatively related to earnings forecast uncertainty, and we present evidence consistent with this prediction. Our findings have important implications for the earnings management interpretation of the asymmetry around zero in the frequency distribution of earnings surprises. We demonstrate how empirically controlling for earnings forecast uncertainty can materially change inferences in studies that employ the incidence of zero and small positive earnings surprises to categorize firms as suspected of managing earnings.

show abstract

Discretionary Accounting Choices and the Predictive Ability of Accruals with Respect to Future Cash Flows

Cited by 103 publications

References 0 publications

Application of accrual accounting in Iran municipalities

Application of accrual accounting in Iran municipalities

Flexibility in cash-flow classification under IFRS: determinants and consequences

Analyst information precision and small earnings surprises

Contact Info

Product

Resources

About