The evidence, however, is inconsistent with explanations from accrual reliability or earnings management.
Discussions on Other Factors: Diminishing Marginal Returns on Investment, Earnings Management, and Accrual Reliability
Another approach to converting from the cash basis to accrual basis operating income involves working with the changes in the account balances.
Two approaches can be used to convert cash basis income to accrual basis income.
Ball, Kothari and Robin (2000) support the idea that the legal regime, particularly regarding the type of governance implemented, impacts accrual anomaly.
Despite the growing number of empirical works on accruals in general, research on accrual anomaly is still incipient in Brazil.
When using the reserve error-based accrual measure in both models, the coefficient on [sigma](NIBE) is positive and significant as predicted.
Nelson, 2003, Management of the Loss Reserve Accrual and the Distribution of Earnings in the Property-Casualty Insurance Industry, Journal of Accounting and Economics, 35: 347-376.
The effect of subjectivity in measuring accounting items roots in the commitment which creates accruals in basic financial statements.
Accruals also obey the law since in recognizing and accounting them subjectivity is used to the extent that causes low stability in these items.
This study contributes to the extensive literature about implementing accrual
accounting and the problems and ambiguities it causes.
EXHIBIT 2 Jones Model and Modified Jones Model to Measure Discretionary (Abnormal) Accruals
Discretionary (abnormal) accruals
are measured by the extent to which total accruals
deviate from predicted nondiscretionary (normal) accruals