Abstract and Keywords
This article reviews recent research on the estimation of discretionary accruals and the detection of earnings management. There has been an explosive growth in research on accrual earnings management over the past twenty years, and almost all has used the Jones (1991) model or one of its close derivatives. Nevertheless, a growing literature has addressed the model’s problems and attempted to improve its estimation of discretionary accruals. The model’s incomplete characterization of how nondiscretionary accruals are determined by the firm’s operations can cause either Type I or Type II errors. This article categorizes recent articles into four groups based on their focus and solution, and while there is no panacea for the problems and no consensus on a new model or method, research offers hope that accrual earnings management is more likely to be detected when it exists and is less likely to be erroneously detected when it is absent (i.e., lower Type II and Type I errors, respectively).
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