Contemporary Accounting Research proï¬le 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 ï¬rms 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 ï¬rst 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 ï¬nd that all 10 measures are signiï¬cantly 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 ï¬ows (Dechow and Dichev 2002), the McNichols (2002) modiï¬cation of Dechow and Dichev 2002, and the Beneish (1997, 1999) probability of earnings
Contemporary Accounting Research – Wiley
Published: Jun 1, 2008
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