IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v29y2024i2d10.1007_s11142-023-09759-8.html
   My bibliography  Save this article

Material changes in accounting estimates and the usefulness of earnings

Author

Listed:
  • Anne Albrecht

    (Texas Christian University)

  • Matt Glendening

    (University of Missouri-Columbia)

  • Kyonghee Kim

    (Michigan State University)

  • Kwang J. Lee

Abstract

This study provides insights into the efficacy of FASB ASC 250 by examining the impact of material changes in accounting estimates (MCEs) on the usefulness of earnings. We find that MCEs, on average, increase the usefulness of earnings measured by the predictive ability of earnings for future cash flows and investor responsiveness to earnings news. Although the results suggest that some firms time their implementation of MCEs to meet desired earnings targets, we also find that ASC 250 disclosures attract investors’ and regulators’ scrutiny, suggesting that MCEs are a costly earnings management tool. Collectively, our findings provide limited support for the widespread use of MCEs for earnings management and suggest that this use is much more nuanced than suggested by prior research. Finally, notwithstanding the benefits of ASC 250 disclosures, our descriptive analysis of related disclosures of accounting estimates suggests that there is room for further improvements in current disclosure practices and regulatory monitoring.

Suggested Citation

  • Anne Albrecht & Matt Glendening & Kyonghee Kim & Kwang J. Lee, 2024. "Material changes in accounting estimates and the usefulness of earnings," Review of Accounting Studies, Springer, vol. 29(2), pages 1320-1359, June.
    • Handle: RePEc:spr:reaccs:v:29:y:2024:i:2:d:10.1007_s11142-023-09759-8
    DOI: 10.1007/s11142-023-09759-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-023-09759-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11142-023-09759-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Accounting estimates; Management discretion; Disclosure regulation; Usefulness of earnings;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:29:y:2024:i:2:d:10.1007_s11142-023-09759-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.