Implications of the Integral Approach and Earnings Management for Alternate Annual Reporting Periods PDF Download
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Author: Katherine Gunny
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We compare earnings for the last twelve months ending in quarter four (i.e., fiscal year earnings), three, two and one. Prior literature offers two competing explanations for why fourth quarter earnings exhibit higher volatility than other interim quarters. Under the first explanation, GAAP assumes that quarterly earnings are an integral part of annual earnings and are used to settle up annual earnings. Any estimation errors in the preceding three quarters are corrected through fourth quarter earnings, which could make them more volatile. Under the second explanation, compensation and lending contracts based on fiscal year earnings lead to a concentration of earnings management in the fourth quarter and thus more volatile fourth quarter earnings. Although both explanations have similar predictions for the properties of quarterly earnings, our simulations show that these explanations, as suggested by Lipe and Bernard 2000, have distinct implications for the properties of annual earnings ending in quarter four, three, two and one. Overall, our results are more consistent with earnings management than settling up. In addition, we examine the relative earnings attributes and find that fiscal year earnings attributes rank lower on dimensions of accrual quality, persistence, predictability, and smoothness. Finally, we re-investigate the accrual anomaly and find that the accrual anomaly is more pronounced for fiscal year earnings.
Author: Katherine Gunny
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We compare earnings for the last twelve months ending in quarter four (i.e., fiscal year earnings), three, two and one. Prior literature offers two competing explanations for why fourth quarter earnings exhibit higher volatility than other interim quarters. Under the first explanation, GAAP assumes that quarterly earnings are an integral part of annual earnings and are used to settle up annual earnings. Any estimation errors in the preceding three quarters are corrected through fourth quarter earnings, which could make them more volatile. Under the second explanation, compensation and lending contracts based on fiscal year earnings lead to a concentration of earnings management in the fourth quarter and thus more volatile fourth quarter earnings. Although both explanations have similar predictions for the properties of quarterly earnings, our simulations show that these explanations, as suggested by Lipe and Bernard 2000, have distinct implications for the properties of annual earnings ending in quarter four, three, two and one. Overall, our results are more consistent with earnings management than settling up. In addition, we examine the relative earnings attributes and find that fiscal year earnings attributes rank lower on dimensions of accrual quality, persistence, predictability, and smoothness. Finally, we re-investigate the accrual anomaly and find that the accrual anomaly is more pronounced for fiscal year earnings.
Author: Alastair Lawrence
Publisher:
ISBN:
Category :
Languages : en
Pages : 11
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Book Description
The paper by Gunny, Jacob, and Jorgensen provides evidence on whether the earnings volatility induced by year-end adjusting entries results from the integral method of accounting or from purposeful earnings management. The authors find that the variance and negative skewness of annual fiscal-year earnings is greater than the corresponding attributes of alternative annual earnings ending in the first three quarters and interpret these findings as evidence consistent with earnings management rather than settling up annual earnings under the integral method of accounting. While it is difficult to assess the usefulness of their conclusion due to problematic assumptions inherent in the research design, Gunny, Jacob, and Jorgensen reinforce the importance of assessing earnings performance using rolling annual windows. Specifically, they find that the quality of earnings for the alternative annual earnings is greater than that of fiscal-year earnings, highlighting that financial statement users may benefit from using alternative annual earnings to assess current and future performance.
Author: Oliveira, Jonas da Silva
Publisher: IGI Global
ISBN: 1522578188
Category : Business & Economics
Languages : en
Pages : 342
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Book Description
The fiscal market is an unpredictable torrent of information that modern organizations strive to understand. Business professionals dedicate themselves to understanding uncertain results around economic performance to improve management, reporting standards, and predict trends in financial statements. International Financial Reporting Standards and New Directions in Earnings Management is an essential reference source that discusses identifying the behavioral patterns of managers and the accounting policies they use in different opportunistic circumstances. Featuring research on topics such as earnings quality, risk reports, and investor protection, this book is ideal for regulatory authorities, accountants, impression managers, auditors, academics, students, and researchers seeking coverage on the theoretical, empirical, and experimental studies that relate to the different themes within earnings management.
Author: Stewart Jones
Publisher: Routledge
ISBN: 1135107262
Category : Business & Economics
Languages : en
Pages : 559
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Book Description
Financial accounting theory has numerous practical applications and policy implications, for instance, international accounting standard setters are increasingly relying on theoretical accounting concepts in the creation of new standards; and corporate regulators are increasingly turning to various conceptual frameworks of accounting to guide regulation and the interpretation of accounting practices. The global financial crisis has also led to a new found appreciation of the social, economic and political importance of accounting concepts generally and corporate financial reporting in particular. For instance, the fundamentals of capital market theory (i.e. market efficiency) and measurement theory (i.e. fair value) have received widespread public and regulatory attention. This comprehensive, authoritative volume provides a prestige reference work which offers students, academics, regulators and practitioners a valuable resource containing the current scholarship and practice in the established field of financial accounting theory.
Author: Srinivasan Rangan
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We provide evidence that the auto-regressive structure of seasonally differenced quarterly earnings is consistent with the requirements of the integral approach to interim reporting. In particular, we show that the auto-regressive coefficients for standardized seasonally differenced quarterly earnings are larger when the quarters employed in the auto-regressions belong to the same fiscal year than when they belong to different fiscal years. We then show that the signs and magnitudes of abnormal stock returns following earnings announcements are systematically related to these differences in the auto-regressive structure of seasonally differenced quarterly earnings. Specifically, stock returns act as if investors underestimate the larger auto-regressive coefficients between quarters in the same fiscal year. Thus, we corroborate and extend the Bernard and Thomas (1990) hypothesis that stock prices fail to reflect the extent to which quarterly earnings series differ from a seasonal random walk.
Author: SUBRAMANYAM
Publisher: McGraw Hill
ISBN: 1526864991
Category : Business & Economics
Languages : en
Pages : 816
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Book Description
EBOOK: Financial Statement Analysis
Author:
Publisher:
ISBN:
Category :
Languages : fr
Pages :
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Book Description
Author: PKF International Ltd
Publisher: John Wiley & Sons
ISBN: 111910436X
Category : Business & Economics
Languages : en
Pages : 1008
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Book Description
Accurately understand and implement the latest IFRS updates Wiley IFRS 2016 is your one-stop resource for understanding and implementing the current International Financial Reporting Standards as dictated by the International Accounting Standards Board (IASB). Fully updated to cover the latest standards and IFRIC interpretations, this book provides clear and concise explanation alongside practical implementation guidance. The information is organized by topic for ease of navigation, making it ideal for both quick reference and in-depth study, with general statement guidance followed by topic-specific discussion. The Disclosure Checklist helps you ensure full compliance at a glance, and advice for first-time adopters helps smooth the initial implementation process. The goal of the International Accounting Standards Board is to achieve global convergence of accounting standards, which will lead to uniformity in financial reporting around the world. Annual updates to the IFRS are a part of these efforts, so staying up to date is an essential part of compliance. This informative guide is your ideal reference, with the latest 2016 updates and practical advice. Understand the framework that unifies the IFRS Interpret and apply the standards correctly Verify compliance and completeness Get expert guidance on implementing the new and updated standard More and more countries around the globe are either adopting IFRS as their national standards, or adapting existing local standards to more closely align with those set by the IASB. Uniform reporting reduces the cost of financial statement preparation for multinational companies, and facilitates the jobs of investment analysts, investors, and others in assessing business results. Wiley IFRS 2016 gives you the explanation, interpretation, and practical guidance you need to ensure full compliance.
Author: Levon Babalyan
Publisher:
ISBN:
Category :
Languages : en
Pages : 185
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Book Description
Author: John Jacob
Publisher:
ISBN:
Category :
Languages : en
Pages : 69
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Book Description
Quarterly earnings allow aggregation into annual earnings in four different ways. Fiscal year reported earnings is one of these four possible measures of annual earnings, the others being earnings for years ending at the first, second and third fiscal quarters. We provide evidence on earnings management in fiscal year earnings relative to these three alternative measures of firms' annual earnings. We confirm prior findings in Burgstahler and Dichev (1997) of discontinuities around zero and around prior year earnings in histograms of fiscal year earnings. Subsequent research questions whether these discontinuities are evidence of earnings management or whether they are attributable to biases induced by taxes, scaling and sample selection. Using the histograms of our alternative annual earnings measures, we offer additional evidence in this debate. We also find evidence of earnings management in broader intervals around thresholds. We believe that our research design is better suited to test for earnings management in these broader intervals than those used in prior studies. We also compare the statistical properties of fiscal year earnings to annual earnings starting with the fiscal year quarters two, three and four. We find that the variance and kurtosis of earnings are higher for fiscal year earnings while skewness of earnings is lower at the fiscal year. These results are more consistent with earnings management than with the effects induced by 'settling up' in fourth quarter earnings. Overall, this study contributes to the literature on the prevalence, effects of and factors associated with earnings management.
