Do Models of Discretionary Accruals Detect Actual Cases of Fraudulent and Restated Earnings? An Empirical Analysis *

Do Models of Discretionary Accruals Detect Actual Cases of Fraudulent and Restated Earnings? An... Contemporary Accounting Research profile accounting scandals, such as Enron, HealthSouth, Qwest, Rite Aid, Tyco, Waste Management, and Xerox. The total amount of restated earnings for the fraud-year observations is $13.3 billion. The mean and median restated earnings over beginning assets are 14.0 percent and 4.4 percent, respectively. Our control sample consists of the entire population of COMPUSTAT firms for which data are available to estimate the discretionary accrual models. We also examine a small sample of nonfraudulent restatements. We examine two questions concerning fraud. First, are the various measures of discretionary accruals associated with the existence of a fraudulent event in the first place? We estimate a logit model to examine the relationship between fraudulent earnings and discretionary accruals, accrual estimation errors, and the Beneish 1999 probabilities of earnings manipulation.1 We include total assets, return on assets, leverage, and auditor type as controls. We find that all 10 measures are significantly associated with a fraudulent event. However, only the accrual estimation errors estimated from cross-sectional models of working capital changes on past, present, and future cash flows (Dechow and Dichev 2002), the McNichols (2002) modification of Dechow and Dichev 2002, and the Beneish (1997, 1999) probability of earnings http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Contemporary Accounting Research Wiley

Do Models of Discretionary Accruals Detect Actual Cases of Fraudulent and Restated Earnings? An Empirical Analysis *

Loading next page...
 
/lp/wiley/do-models-of-discretionary-accruals-detect-actual-cases-of-fraudulent-BYBsKeyWTB
Publisher
Wiley
Copyright
2008 Canadian Academic Accounting Association
ISSN
0823-9150
eISSN
1911-3846
D.O.I.
10.1506/car.25.2.8
Publisher site
See Article on Publisher Site

Abstract

Contemporary Accounting Research profile accounting scandals, such as Enron, HealthSouth, Qwest, Rite Aid, Tyco, Waste Management, and Xerox. The total amount of restated earnings for the fraud-year observations is $13.3 billion. The mean and median restated earnings over beginning assets are 14.0 percent and 4.4 percent, respectively. Our control sample consists of the entire population of COMPUSTAT firms for which data are available to estimate the discretionary accrual models. We also examine a small sample of nonfraudulent restatements. We examine two questions concerning fraud. First, are the various measures of discretionary accruals associated with the existence of a fraudulent event in the first place? We estimate a logit model to examine the relationship between fraudulent earnings and discretionary accruals, accrual estimation errors, and the Beneish 1999 probabilities of earnings manipulation.1 We include total assets, return on assets, leverage, and auditor type as controls. We find that all 10 measures are significantly associated with a fraudulent event. However, only the accrual estimation errors estimated from cross-sectional models of working capital changes on past, present, and future cash flows (Dechow and Dichev 2002), the McNichols (2002) modification of Dechow and Dichev 2002, and the Beneish (1997, 1999) probability of earnings

Journal

Contemporary Accounting ResearchWiley

Published: Jun 1, 2008

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off