|
Identifying earnings management: A financial statement analysis(red flag) approach
Luke Bayley, ABN Amro
Stephen L Taylor, University of New South Wales
ABSTRACT. We contrast the power of financial statement analysis techniques (i.e., red flag accounting ratios) with measures of unexpected accruals for identifying instances of significant earnings overstatements. Our results suggest that relative to a group of matched control firms, those firms identified by the SEC as having overstated earnings outside the boundaries of GAAP have significantly different financial statement characteristics. We also find that a model based on several financial statement indicators, and even just total accruals, has greater power in identifying these earnings overstatements than measures of unexpected accruals based on the model of Jones (1991) and extensions thereof. Our results suggest that future research directed at improved measures of earnings management for practical purposes might profitably focus on insights from financial statement analysis as much as from further refinement of traditional unexpected accrual measures
Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.
Back to Session Listing
|