Total Accruals Research Articles

Accruals and Long-Term Nonfinancial Assets and Liabilities

ABSTRACT This study proposes improvements to accrual models. Existing models explain how working capital maps cash flows from operations into earnings and how this mapping reflects accounting conservatism. However, except for fixed asset depreciation, accruals associated with long-term nonfinancial balance sheet accounts (e.g., intangible assets, goodwill, deferred revenues) are not modeled. We show that these unmodeled accruals have grown in importance over time and that a significant portion of them can be explained by utilizing a fundamental property of accrual accounting: most nonfinancial assets and liabilities will eventually be transferred to earnings as accruals, especially during bad times. Using a large U.S. sample for the 1988–2019 period, we document that beginning-of-year long-term nonfinancial assets and liabilities are significantly associated with total accruals and that, consistent with conditional conservatism, a greater proportion of long-term nonfinancial assets is expensed as accruals when current performance is poor. In simulations, compared to traditional models, models that include long-term nonfinancial assets and liabilities as regressors are more likely to detect seeded discretionary accruals between 2% and 20% of total assets, suggesting that these expanded models should be used to decrease the likelihood of making erroneous inferences.

Fraud Hexagon Analysis in Detecting Financial Statement Fraud with Corporate Governance as a Moderating Variable

The purpose of this research is to study the influence of the fraud hexagon on financial report fraud in insurance companies listed on the Indonesia Stock Exchange from 2018 to 2022, incorporating corporate governance as a moderating factor. In this study, the fraud hexagon serves as the independent variable, while financial report fraud is the dependent variable. The data analysis method used is multiple regression. The research findings indicate that the variables of external pressure and ineffective monitoring have a positive influence on financial report fraud. Conversely, the variables of total accruals, CEO education, CEO duality, and political connections show a negative influence on financial report fraud. Corporate governance, as a moderating variable, is found to moderate only the relationship between external pressure and CEO duality on financial report fraud.

Moderate of audit committee on components of the fraud hexagon theory and fraudulent financial statements

This study aims to analyze the effect of each component of the fraud hexagon theory on fraudulent financial statements with the audit committee as a moderator. This research was conducted at banking sector companies listed on the IDX in 2019-2022, totaling 47 companies. The sampling method uses purposive sampling which results in 44 companies with 176 financial data used as samples. Data analysis was carried out on secondary data with SEM-PLS analysis techniques. The results of this study indicate that independent commissioners who hold concurrent positions, the ratio of total accruals to total assets (TATA) and ineffective monitoring have no effect on fraudulent financial statements. External pressure has a negative effect on fraudulent financial statements, while changes in directors and managerial ownership have a positive effect on fraudulent financial statements. The audit committee is able to moderate the effect of external pressure, change of directors, managerial ownership and ineffective monitoring on fraudulent financial statements. The audit committee is unable to moderate the effect of independent commissioners who hold concurrent positions, the ratio of total accruals to total assets (TATA) on fraudulent financial statements.

Determinan Fraudulent Financial Statement: Peran Komite Audit Sebagai Pemoderasi

The phenomenon of Fraudulent Financial Statement contributes the largest average loss in the world compared to other types of fraud and the involvement of property and real estate sector companies in Fraudulent Financial Statement scandal prompts researchers to investigate further regarding this phenomenon. With regard to the impact of the fraud pentagon on fraudulent financial statements, this study attempts to provide empirical proof of moderating role of audit committee in Property and Real Estate companies for the period 2020-2022 with an observed sample size of 54 companies. Purposive sampling was the sample technique chosen for the present inquiry. IBM SPSS Statistics 26 used to scrutinize the gathered data by means of moderated regression analysis technique. It was discovered that Fraudulent Financial Statements have proved to be significantly impacted by Financial Stability and Total Accruals. Meanwhile, moderating effect provided results that from the abundance of five Pentagon Fraud indicators, only Financial Stability can be significantly moderated by the audit committee.

Detecting Earning Manipulation Using the Beneish M-Score Model: Evidence from Public Listed Companies in Malaysia

This paper aims to examine the association between earning manipulation using the Beneish M-Score Model and share price with market capitalisation as the control variable among public listed companies (PLCs) in Malaysia. The study was performed over a four-year period from 2017 to 2020 using the financial data of 65 PLCs under the Financial Times Stock Exchange (FTSE) Bursa Malaysia Top 100 Index, including various industries except the financial service industry. The Beneish M-Score Model comprised eight variables or ratios to identify earning manipulations, namely Days Sales in Receivable Index (DSRI), Gross Margin Index (GMI), Asset Quality Index (AQI), Depreciation Index (DEPI), Sales Growth Index (SGI), Sales, General and Administrative Index (SGAI), Total Accruals to Total Assets (TATA), and Leverage Index (LVGI). The market price was measured using the year-end share price. The findings found that there was a weak negative association as well as a statistically insignificant relationship between earning manipulation and share price, which suggests that earning manipulation is influenced by other factors excluding share price. The findings did not support the argument that there was a significant relationship between earning manipulation and share price where companies had been discovered to have engaged in earning manipulation. The study is crucial for the stakeholders that expect companies to achieve the maximum returns and stability in investments and to protect owners’ rights.

Good Corporate Governance and Corporate Social Responsibility on Financial Performance Through Earning Management

Abstract Purpose - This study aims to determine the effect of GCG and CSR on Financial Performance Through Earning Management during Covid-19 pandemic to see whether the company can be sustainable. Design/methodology/approach - Study employs a quantitative methodology and utilizes the firm LQ45, one of 45 companies listed on the IDX for the 2018–2022 time frame. Based on EPS and TBQ as proxies.Findings - The research findings demonstrate a substantial impact of CSR on FP. Financial performance is significantly impacted by GCG factors with institutional ownership proxies, ROA, EPS, and TBQ proxies, as well as audit quality indicators. The Kind variable on financial performance, which is mediated by the total accrual of the CSR variable in the form of TBQ and EPS, can't be mediated by Total Accrual. This indicates that the independent variable has no discernible negative impact on financial performance. Total accruals mediate between the independent variable's large positive impact on financial performance. Thus, it is clear that whereas earnings management can do so between GCG and CSR variables to financial performance. Management can choose to either maximize or minimize income through accounting policies, which can worry investors. Hence, enhancing environmental and social activities through CSR can impact earnings management.Research limitations/implications – Implementing CSR in businesses can safeguard the environment while also improving financial success, Especially given that the ordinary investor is concerned with the environment and the company's sustainability. Keywords: Good Corporate Governance, Corporate Social Responsibility, Earning Management, Financial Performance, and Audit Quality

Audit Quality and Earnings Management: Evidence from Sri Lanka: Food & Beverage and Hotel Sectors

The company's earnings are crucial for investors' decision-making since they provide emblems about value-creating ability. However, with the possibility of manipulating earnings, the whole purpose of financial reporting becomes valueless. External independent auditing can be identified as a control mechanism that minimises earnings management. This study examines the impact of audit quality on earnings management in the food and beverage sector and hotel companies in the Colombo Stock Exchange from 2013 to 2019. The real earnings management approach and total accruals are used to measure the earnings quality, while audit firm size, presence of the audit committee, frequency of the audit committee meetings and audit timeliness are the audit quality proxies. The study used regression analysis as the main analysis tool, and the findings reveal the existence of earnings management in the food and beverage and hotel sectors. Fascinatingly, audit quality does not significantly impact earnings management in the food and beverage sector, while it exists in the hotel sector. Moreover, companies' size and leverage significantly impact earnings management in both sectors. These findings suggest that effective regulation and monitoring are necessary to improve audit quality for both sectors, especially in the hotel sector companies in Sri Lanka. Hence, enhancing audit quality would minimise earnings management and improve earnings quality, which is instrumental to the decision-makers, especially investors and creditors. Henceforth, we suggest improving the audit quality in the food and beverage and hotel sectors and enhancing disclosure requirements such as research and development expenses, audit time, and non-audit services.

Detecting Earnings Management And Earnings Manipulation In Indonesia: A Panel Data Analysis

This research aims to measure the quality of profits in non-financial sector companies in Indonesia regarding the extent to which the Company's financial reports are trustworthy to stakeholders. In this research, discretionary accruals are an indicator for measuring earnings manipulation, and non-discretionary accruals are an indicator for measuring earnings management. Secondary data is from annual reports of non-financial sector companies on IDX in 2020-2022. The sample for this research is non-financial sector companies, including the raw materials, manufacturing, and service sectors. Our research uses a modified Jones Model to estimate earnings management and earnings manipulation. The data analysis technique uses panel data regression. The research results show that the value aspect of discretionary accruals significantly influences total accruals. In contrast, the value of non-discretionary accruals does not significantly impact total accruals. This research is expected to help auditors, users of financial reports, and accounting standards bodies identify companies that fraud.

The differential impact of distracted auditors in managing portfolio of financially distressed audit clients on audit quality: the role of professional skepticism

This study hypothesizes that distracted auditors affect audit quality. As a result of resources scarcity, auditors pay more attention to financially distressed audit clients rather than non-financially distressed audit clients at the same audit client portfolio which eventually leads to differences in audit quality. In this context, earnings restatement of audit clients is used as a distraction event of auditors. Distracted auditor is measured by the percentage of the audit fees of financially distressed audit clients to total audit fees and audit quality is proxied by total accruals. The data is obtained from firms listed on the US stock market over eleven years between 2010 and 2020. The results indicate that financially distressed audit clients of distracted auditors receive higher audit quality than non-financially distressed audit clients of the same audit client portfolio. Further analysis suggests that this difference in audit quality between financially distressed audit clients and non-financially distressed audit clients decreases with skeptical auditors. This study introduces a new comprehensive approach to measure professional skepticism using KAMs disclosure. The results are robust to different measurements of distracted auditors, audit quality and professional skepticism. Overall, the empirical analyses suggest that distracted auditors have a decreasing differential impact on audit quality by professional skepticism.

Impact of Accounting Conservatism on Income Smoothing: Empirical Evidence from Algeria

Abstract This paper investigates the impact of accounting conservatism on income smoothing as a proxy for accounting manipulation. The study used 993 observations for 133 Algerian companies from 2012 to 2020, where income smoothing was measured by the variations in cash flows relative to earnings. However, conservatism was measured through non-operating accounting accruals, accruals-to-earnings ratio before extraordinary items, and allowances. The results showed that total accruals do not impact income smoothing versus positive impacts from non-operating accruals and allowances to income smoothing. Therefore, the study concluded that accounting conservatism facilitates income smoothing in Algerian companies by extending the discretionary room available for managers to manipulate earnings. These results require accounting regulators to consider the role of conservatism in manipulation when setting or amending accounting standards. They also imply that auditors should give more attention to conservative accounting practices to limit the opportunistic behavior of managers and increase the reliability of financial information.

Determinants Of Earning Persistence In Consumer Cyclicals Sector In Indonesia

Companies need income persistence in maintaining performance in the capital market. Income persistence will be a consideration for investors in making investment decisions. This study analyzes the factors of total accruals, real earnings management, cash flow volatility, and leverage that can affect income persistence in consumer cyclicals companies listed on the Indonesia Stock Exchange in 2017-2020. Sampling method with purposive sampling method. There were 42 samples that met the criteria. The analysis used multiple regression analysis which was processed using SPSS 22. The research showed that total accruals, cash flow volatility, and leverage had no effect on earnings persistence, but real earnings management showed an effect on income persistence. However, real earnings management showed effect on earnings persistence. The implication of this research is that every company must pay attention to these four factors in the current year so that it shows good and resilient corporate finance which can provide a positive signal for investors so that it increases the company's share price in the capital market.

Statutory Payments and Accruals on Financial Performance of Listed Non-Financial Firms in Nigeria

The unresolved controversy regarding the effect of statutory payments and accruals on financial performance continues to challenge the success of listed non-financial firms in Nigeria. Despite the critical importance of these factors, there exists a lack of clarity and understanding surrounding their impact on organisational outcomes. Given the foregoing, this study examined the effect of statutory payments and total accruals on financial performance of listed non-financial firms in Nigeria. To achieve these objectives, longitudinal research design was employed and the study used twenty (20) listed non-financial firms that had consistently published their audited annual financial reports from 2008 to 2022, and analyzed the data using panel multiple regression technique with the help of E-view 13 statistical tools. The result of the study revealed that financial statutory payment has a significant effect on financial performance of listed non-financial firms in Nigeria. Conversely, total accrual has insignificant effect on financial performance of listed non-financial firms in Nigeria. Thus, this study concluded that statutory payments serve as a veritable tool or determinant of financial performance. Thus, the study recommended that non-financial firms are to prioritize compliance with financial statutory payments, as demonstrated by the significant influence of such payments on financial performance. This entails adhering to regulatory requirements, tax obligations, and other statutory payments to maintain transparency and credibility with stakeholders.

The Impact of Firm Characteristics on Earnings Management: A Study of Firms Listed in India

This study examines the impact of firm characteristics on earnings management (EM) using a sample of listed non-financial firms in India. First, we take a comprehensive perspective to estimate EM focusing on total accruals, current accruals and specific accruals. Second, we examine firm characteristics such as size, leverage, performance, growth opportunities and industry membership that are potentially related to accruals EM. We find that: 1) Large firms and firms with high performance have higher accruals quality. 2) Firms with higher growth opportunities have lower accruals quality. 3) Firms with high leverage use accruals EM to avoid violation of debt covenants. These findings indicate that investors and regulators should take into account both: the abnormal accruals over a period of time and the variability of abnormal accruals to analyse the quality of financial reporting of large firms, firms with high performance and highly levered firms.

Vrednosna relevantnost upravljanih zarada u indijskim firmama - analiza uticaja konvergencije MSFI korišćenjem dinamičkih panel modela

The study explores the relationship between earnings management and value relevance of accounting information of Indian listed firms by investigating three different modes of earnings management - total, short-term and long-term discretionary accruals. Additionally, the study investigates the impact of the converged International Financial Reporting Standards (IFRS), known as Indian Accounting Standards (IndAS), on earnings management which in turn influences value relevance. This study is the first in India to analyse the differential effects of short-term and longterm earnings management on value relevance and to address the endogeneity issue in the price value relevance model through dynamic panel modelling while controlling for the use of the IndAS. The study finds a significant effect of both short-term and long-term accruals management on value relevance and a positive influence of IndAS on the relationship between earnings management and firm value.

Detecting Fraud in Financial Statements Through the Fraud Triangle Model: The Case of Indonesia

Referring to ACFE Global’s in the year 2016 until 2018 RTTN, fraudulent financial statement detection is a typical frequency occurrence and gets a large median loss. This study’s purpose is to determine the perspective of the fraud triangle as measured by three elements where fraud occurs in financial statements and is proxied by earnings management. The population is chosen from banking industries that have been listed on the Indonesia Stock Exchange in 2018-2020. The research sample was 25 banks based on the purposive sampling method as criteria sampling. Objects found are 75 objects and hypothesis testing used binary logistic regression. The results show that the fraud triangle perspective simultaneously affects fraud on financial statements. But, partially only pressure factors as proxied by return on assets were shown to be significantly positive, while other pressure factors were financial stability, external pressures, the nature of the industry, effective monitoring with the measure by the independent commissioner, and the rationalization factor, measured by total accruals (TACC) have no significant. The fraud triangle measurement is only used in this research to detect fraud. In addition, very limited sample use because it only covers 4 years so it cannot provide sufficient confidence. It is important to ascertain and analyze fraud factors that can affect financial reporting to minimize fraud that occurs. Management must obtain the widest possible information for making the right decisions so that the triggers of fraud can be minimized and eliminated

The relative valuation of cash flow and current accruals affected by their extremity

PurposeRecent studies on the securities market’s differential pricing of earnings components have shown that cash flow from operations is more highly valued than total accruals and that moderate cash flow from operations has higher valuation than extreme total accruals. An interesting question that follows is whether these findings hold regarding the differential valuations of cash flow and current accruals. This study aims to extend prior research by addressing this issue in two ways. First, the authors examine the incremental information content of cash flow from operations beyond working capital from operations. Second, the authors assess the effect of extreme working capital from operations on the incremental information content of cash flow from operations. This study aims to extend prior research by addressing this issue in two ways.Design/methodology/approachThis study adopts market-based accounting research to test its hypotheses and to achieve its objectives. Specifically, this study uses statistical associations between accounting data and stock returns to examine the incremental information content (value relevance) of cash flow and working capital from operations and the effect of extreme working capital from operations on the incremental information content of cash flow.FindingsThe results show that cash flow from operations is not more highly valued than current accruals (both being valued equivalently). However, moderate cash flow from operations has higher valuation than extreme current accruals (each is valued differently). Overall, these research findings indicate that cash flow becomes more important for valuation as accruals get “extreme”.Practical implicationsAs accruals are unlikely to persist to be permanent across the years, these results can be interpreted as indicating that cash flow and accruals information are used jointly by investors, with one being more important than the other depending on the relative “extremeness” of each. Therefore, both are of value to the investor and both should be reported.Originality/valueThe paper contributes to the UK research on determining the preferred level of disaggregation of earnings components, i.e. operating cash flow, current accruals and non-current accruals. This would help investors to improve their investment and credit decisions.

Corporate Fraud, Earnings Management and Firm Value: Empirical Application of M-Scores

Background: Corporate fraud and earnings management have been controversial and discussed extensively in the literature, as companies consider the practices strategic and creative to keep their companies afloat and sustain a desired firm value. While this unethical practice has remained illegal, unethical and a global concern, the trajectory to higher incentives by executives to insider dealings to keep the stock price attractive by managers is unacceptable, this study provides new insight and implications of corporate fraud and earnings management on firm value. Objective: This paper investigates the effect of corporate fraud and earnings management on firm value from the perspective of the application of Beneish M-Score manipulation and probability index as indicators to detect corporate fraud and earnings management on Tobin’s Q as a surrogate of firm value The main aim is to establish the consequence of corporate fraud and earnings management on firm value and highlights the forms of corporate fraud and earnings management, stakeholders concerns and unattractiveness of fraud corporate in whatever capacity. Method: Using descriptive statistics and inferential analysis, the study provides evidence that leverage index, sales growth and sales and administrative expense exerted positive effects and channels for corporate fraud and earning management of the selected Nigerian-listed consumer goods manufacturing companies. We found that while each of the day’s sales trade receivables index, assets quality index, leverage index and sales growth quality index exerted positive effects, the gross margin index, depreciation index and total accruals to total index exhibited negative insignificant effects. However, the joint attributes of corporate fraud and earnings management had a positive significant effect on Tobin’s Q as a firm value surrogate Our Conclusion: The study contributing to knowledge, provides new empirical evidence of the application of the Beneish M-Score model as a novelty to the probability incentive for corporate fraud and earnings management in the companies examined.

Corporate governance and earnings management: Evidence from Vietnamese listed firms

Using the hand-collected data of 800 Vietnamese non-financial firms from 2008 to 2018, this study constructs a comprehensive corporate governance index in alignment with the corporate governance code of best practices in Vietnam. We provide strong evidence that corporate governance quality restrains earnings management, measured by both the absolute and signed discretionary accruals and the real earnings management. In particular, the negative association between corporate governance quality and earnings management is more profound in private firms (non-SOEs), firms with high foreign ownership and low concentrated ownership, and high growth firms compared to their peers. The observed results are robust to alternative measures of discretionary accruals, total accruals andreal earnings management. Furthermore, the results are corroborated using instrumental variables, firm fixed effects and propensity score matching methods to address potential reverse causality and sample selection bias.

Detection of Fraudulent Financial Reporting Using the Perspective of the Fraud Triangle Factors on Financial Statement

The research objective is to determine the effect that occurs on the financial statements by using the fraud triangle. The population in this research is a food and beverage sector company that has been listed on the Indonesia Stock Exchange for the 2017–2020. The sampling method in this research used a purposive sampling method and obtained a sample of 108 industries. The type of information data used in this research is secondary data. Sources of data information in this research come from the Indonesia Stock Exchange in the form of company financial reports, company annual reports, and other sources. This research uses logistic regression analysis to examine the effect of financial stability, external pressure, personal financial needs, financial targets, industry conditions, supervisory ineffectiveness, organizational structure, auditor turnover, audit opinion, and total accruals. The results of this research indicate that financial stability, external pressure, financial targets, industry conditions, supervisory ineffectiveness, organizational structure, auditor turnover, audit opinion, and total accruals do not affect fraudulent financial reporting. Meanwhile, personal financial needs have an effect on fraudulent financial statements.

KEMAMPUAN KUALITAS AUDIT MEMODERASI PENGARUH FRAUD HEXAGON TERHADAP FRAUDULENT FINANCIAL STATEMENTS

This study aims to determine the influence of the hexagon fraud factor, namely financial stability, nature of industry, total accrual total assets, CEO's Education, frequent number of CEO's picture, state owned enterprise on potential fraudulent financial statements with audit quality as a moderating variable. This study uses company objects in the consumer goods industry sector which are listed on the Indonesia Stock Exchange for the 2018-2021 period. The sampling technique in this study was a non-probability sampling technique using purposive sampling method, resulting in 164 samples. The results show that financial stability, nature of industry and total accrual total assets have a positive effect on the potential for fraudulent financial reporting. CEO's education, frequent number of CEO's picture, and state owned enterprise have no effect on the potential for fraudulent financial statements. The moderating variable of audit quality is proven to be able to weaken the positive effect of financial stability on the potential for fraudulent financial reporting. The moderating variable of audit quality is not able to weaken the positive influence of nature of industry and total accruals of total assets on potential fraudulent financial statements.