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Systematic Measurement Error in the Estimation of Discretionary Accruals: An Evaluation of Alternative Modelling Procedures


  • Steven Young

    (Department of Accounting and Finance, Lancaster University.)


This paper evaluates the extent of predictable measurement error induced by five alternative approaches to the estimation of discretionary accruals. The source and magnitude of the error is assessed by reference to the strength of the association between the discretionary accrual estimate and proxies for the non-discretionary components of total accruals. Results indicate that discretionary accruals generated by the Healy model are associated with the highest level of predictable measurement error. While the remaining four models generate significantly lower error levels, the magnitude of error remains highly significant. Findings highlight the limitations of existing models and emphasise the need for further developments in relation to the measurement of earnings management activity. Copyright Blackwell Publishers Ltd 1999.

Suggested Citation

  • Steven Young, 1999. "Systematic Measurement Error in the Estimation of Discretionary Accruals: An Evaluation of Alternative Modelling Procedures," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(7&8), pages 833-862.
  • Handle: RePEc:bla:jbfnac:v:26:y:1999-09:i:7&8:p:833-862

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    Cited by:

    1. Hervé Stolowy & Gaetan Breton, 2000. "A Framework for the Classification of Accounts Manipulations," Working Papers hal-00597249, HAL.
    2. Salma S. Ibrahim, 2009. "The Usefulness of Measures of Consistency of Discretionary Components of Accruals in the Detection of Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9-10), pages 1087-1116.
    3. Vander Bauwhede, Heidi & Willekens, Marleen & Gaeremynck, Ann, 2003. "Audit firm size, public ownership, and firms' discretionary accruals management," The International Journal of Accounting, Elsevier, vol. 38(1), pages 1-22.
    4. Iatridis, George, 2012. "Terrorist attacks and company financial numbers: Evidence on earnings management and value relevance from Madrid, London and Istanbul," Research in International Business and Finance, Elsevier, vol. 26(2), pages 204-220.
    5. José António Moreira & Peter F. Pope, 2006. "Unequal Impact of Conservatism on Accrual Measures and Drivers: Implications for the Specification of Accrual Models," CEF.UP Working Papers 0604, Universidade do Porto, Faculdade de Economia do Porto.
    6. Ke Zhong & Robert B. Welker & Donald W. Gribbin, 2010. "Method-Shifting in Aggressive Earnings Reporting: The Case of the US Software Industry's Response to New US Regulation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7-8), pages 792-814.
    7. He, Guanming, 2016. "Fiscal Support and Earnings Management," The International Journal of Accounting, Elsevier, vol. 51(1), pages 57-84.
    8. Athanasakou, Vasiliki & Strong, Norman & Walker, Martin, 2010. "The association between classificatory and inter-temporal smoothing: Evidence from the UK's FRS 3," The International Journal of Accounting, Elsevier, vol. 45(2), pages 224-257, June.
    9. Yu, Qiao & Du, Bin & Sun, Qian, 2006. "Earnings management at rights issues thresholds--Evidence from China," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3453-3468, December.
    10. Christoph Kaserer & Carmen Klingler, 2008. "The Accrual Anomaly Under Different Accounting Standards - Lessons Learned from the German Experiment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7-8), pages 837-859.
    11. Maijoor Steven & Vanstraelen Ann, 2002. "Earnings Management: The Effects of National Audit Environment, Audit Quality and International Capital Markets," Research Memorandum 070, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    12. repec:kap:jfsres:v:51:y:2017:i:2:d:10.1007_s10693-016-0263-0 is not listed on IDEAS
    13. José A. C. Moreira, 2006. "Discretionary Accruals: The Measurement Error Induced By Conservatism," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 0(2), pages 115-125.
    14. Christian Calmès & Denis Cormier & Francois Éric Racicot & Raymond Théoret, 2012. "Firms' Accruals and Tobin’s q," RePAd Working Paper Series UQO-DSA-wp032012, Département des sciences administratives, UQO.
    15. José A. C. Moreira & Peter F. Pope, 2007. "Piecewise Linear Accrual Models: do they really control for the asymmetric recognition of gains and losses?," CEF.UP Working Papers 0703, Universidade do Porto, Faculdade de Economia do Porto.

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