Irregularities in Accounting Numbers and Earnings Management – A Novel Approach Based on SEC XBRL Filings

Journal of Emerging Technologies in Accounting, Forthcoming

Posted: 24 Jul 2013 Last revised: 1 Aug 2015

See all articles by Klaus Henselmann

Klaus Henselmann

University of Erlangen-Nürnberg (FAU)

Dominik Ditter

University of Erlangen-Nürnberg (FAU)

Elisabeth Scherr

University of Erlangen-Nürnberg (FAU)

Date Written: July 31, 2015

Abstract

The SEC XBRL mandate enables the gathering of accounting numbers to be fully automatic in a database-like manner which provides vast opportunities for financial analysis. Using this functionality, this study proposes a simple analytical prescreening measure that uses abnormal digit distributions at the firm-year level to identify firms being suspect of having managed earnings. On average, we find that the constructed measure indicates a greater amount of irregularities in the reported accounting numbers of firms with higher incentives to engage in earnings management. The suggested XBRL-enhanced digit analysis approach may provide the SEC and investors a simple measure to flag financial reports carrying a higher probability of human interaction.

Keywords: XBRL, digit analysis, Benford’s Law, earnings management, earnings benchmarks

JEL Classification: C10, M41, M43

Suggested Citation

Henselmann, Klaus and Ditter, Dominik and Scherr, Elisabeth, Irregularities in Accounting Numbers and Earnings Management – A Novel Approach Based on SEC XBRL Filings (July 31, 2015). Journal of Emerging Technologies in Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2297355 or http://dx.doi.org/10.2139/ssrn.2297355

Klaus Henselmann (Contact Author)

University of Erlangen-Nürnberg (FAU) ( email )

Accounting and Auditing
Lange Gasse 20
Nürnberg, 90403
Germany
++499115302378 (Phone)
++499115302401 (Fax)

HOME PAGE: http://www.pw.wiso.fau.de

Dominik Ditter

University of Erlangen-Nürnberg (FAU)

Lange Gasse 20
Nürnberg, 90403
Germany

HOME PAGE: http://www.pw.wiso.fau.de

Elisabeth Scherr

University of Erlangen-Nürnberg (FAU) ( email )

Lange Gasse 20
Nürnberg, 90403
Germany
++499115302310 (Phone)
++499115302401 (Fax)

HOME PAGE: http://www.pw.wiso.fau.de

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