Discussion of 'Implications of the Integral Approach and Earnings Management for Alternative Annual Reporting Periods'

11 Pages Posted: 8 Jan 2014

See all articles by Alastair Lawrence

Alastair Lawrence

London Business School / University of California, Berkeley

Date Written: April 30, 2013

Abstract

The paper by Gunny, Jacob, and Jorgensen provides evidence on whether the earnings volatility induced by year-end adjusting entries results from the integral method of accounting or from purposeful earnings management. The authors find that the variance and negative skewness of annual fiscal-year earnings is greater than the corresponding attributes of alternative annual earnings ending in the first three quarters and interpret these findings as evidence consistent with earnings management rather than settling up annual earnings under the integral method of accounting. While it is difficult to assess the usefulness of their conclusion due to problematic assumptions inherent in the research design, Gunny, Jacob, and Jorgensen reinforce the importance of assessing earnings performance using rolling annual windows. Specifically, they find that the quality of earnings for the alternative annual earnings is greater than that of fiscal-year earnings, highlighting that financial statement users may benefit from using alternative annual earnings to assess current and future performance.

Keywords: Integral method of accounting, earnings management, unbiased application of GAAP, earnings quality, alternative annual earnings, write-downs.

JEL Classification: G12, M41.

Suggested Citation

Lawrence, Alastair, Discussion of 'Implications of the Integral Approach and Earnings Management for Alternative Annual Reporting Periods' (April 30, 2013). Review of Accounting Studies, Vol. 18, No. 3, 2013. Available at SSRN: https://ssrn.com/abstract=2375446

Alastair Lawrence (Contact Author)

London Business School / University of California, Berkeley ( email )

Regent's Park
London
United Kingdom

HOME PAGE: http://Www.alastairlawrence.net

Register to save articles to
your library

Register

Paper statistics

Downloads
85
rank
277,697
Abstract Views
586
PlumX Metrics