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Discussion of “Implications of the integral approach and earnings management for alternative annual reporting periods”

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  • Alastair Lawrence

    (University of California at Berkeley)

Abstract

The paper by Gunny, Jacob, and Jorgensen (Rev Account Stud, 2013) 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 et al. (2013) 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.

Suggested Citation

  • Alastair Lawrence, 2013. "Discussion of “Implications of the integral approach and earnings management for alternative annual reporting periods”," Review of Accounting Studies, Springer, vol. 18(3), pages 892-898, September.
    • Handle: RePEc:spr:reaccs:v:18:y:2013:i:3:d:10.1007_s11142-013-9241-z
    DOI: 10.1007/s11142-013-9241-z
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    References listed on IDEAS

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    1. Cindy Durtschi & Peter Easton, 2009. "Earnings Management? Erroneous Inferences Based on Earnings Frequency Distributions," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 47(5), pages 1249-1281, December.
    2. Somnath Das & Pervin K. Shroff & Haiwen Zhang, 2009. "Quarterly Earnings Patterns and Earnings Management," Contemporary Accounting Research, John Wiley & Sons, vol. 26(3), pages 797-831, September.
    3. Katherine A. Gunny & John Jacob & Bjorn N. Jorgensen, 2013. "Implications of the integral approach and earnings management for alternate annual reporting periods," Review of Accounting Studies, Springer, vol. 18(3), pages 868-891, September.
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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