Modelling Receivables and Deferred Revenues to Detect Revenue Management

Abacus, 2018, Vol. 54 (2), pp. 181-209, Special Issue on Earnings Management

41 Pages Posted: 15 Apr 2014 Last revised: 26 Jul 2018

See all articles by Jenny Zha Giedt

Jenny Zha Giedt

George Washington University - School of Business

Date Written: June 15, 2017

Abstract

This study develops and calibrates a revenue accruals model. Changes in accounts receivable and deferred revenues are modeled using the respective income statement and cash flow numbers (i.e., revenues and cash flows from sales) that relate directly to the accruals’ origination and reversal. Compared to existing models, the proposed specification explains more variation in the data and, in simulations with seeded revenue manipulation, exhibits greater detection power and less bias. Furthermore, the abnormal revenue estimates are positively associated with cases of revenue misstatements identified by the SEC. Results imply that researchers, auditors, and regulators interested in detecting earnings management should focus on modeling specific accruals. As a practical matter, for detecting revenue management, they should consider broadening their scope to examine not only accounts receivable but also current and long-term deferred revenues.

Keywords: Accounts receivable; Deferred revenues; Discretionary accruals; Earnings management; Revenue management; Revenue recognition

JEL Classification: K22, G18, M40, M41, M49

Suggested Citation

Zha Giedt, Jenny, Modelling Receivables and Deferred Revenues to Detect Revenue Management (June 15, 2017). Abacus, 2018, Vol. 54 (2), pp. 181-209, Special Issue on Earnings Management. Available at SSRN: https://ssrn.com/abstract=2424848 or http://dx.doi.org/10.2139/ssrn.2424848

Jenny Zha Giedt (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

HOME PAGE: http://www.jennyzha.com

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