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Management bias across multiple accounting estimates

Author

Listed:
  • Timothy A. Seidel

    (Brigham Young University)

  • Chad A. Simon

    (Utah State University)

  • Nathaniel M. Stephens

    (Utah State University)

Abstract

We examine whether managers appear to aggregate bias in multiple subjective accrual estimates to meet or just beat analyst expectations. We also consider whether the updated language in recent PCAOB auditing standards, focusing auditors on the potential for bias across multiple estimates, impacted this method of managing earnings. Using hand-collected data from a sample of manufacturers, we find that meeting or just beating the most recent consensus analyst earnings forecast is positively associated with income-increasing bias aggregated from multiple accounting estimates. We also find that this relation attenuates in the years following the issuance of PCAOB auditing standards. Further analyses reveal that, after these standards were released, firms increased the use of income-increasing, unexpected non-GAAP exclusions to meet or just beat expectations, an alternative technique subject to less auditor scrutiny.

Suggested Citation

  • Timothy A. Seidel & Chad A. Simon & Nathaniel M. Stephens, 2020. "Management bias across multiple accounting estimates," Review of Accounting Studies, Springer, vol. 25(1), pages 1-53, March.
    • Handle: RePEc:spr:reaccs:v:25:y:2020:i:1:d:10.1007_s11142-019-09518-8
    DOI: 10.1007/s11142-019-09518-8
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    More about this item

    Keywords

    Management bias; PCAOB standards; Meeting analyst expectations; Accounting estimates;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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