Role of Discretionary Current Accruals on Earning Management- A Case Study: Publicly Traded Companies at Tehran Stock Exchange

Abstract

The aim of this paper is testing earning management of companies providing the initial stock and the relation between discretionary current accruals and Operation cash flow, Free Cash Flow by using the financial information of companies in the Tehran exchange stock in fundamental metals industry and Cement, Lime and Plaster in a period of four years. We used Jonse adjusted model to examine earnings management and discretionary current accruals. We find that the environmental condition of each industry can have an influence on the content of managers’ usage of discretionary current accruals in order to manage earning. It also was determined that discretionary current accruals has significant relation with Operation cash flow and free Cash Flow, and the results show that we can consider free cash flow as an incentive earnings management.