Do Analysts and Auditors Use Information in Accruals?

Posted: 3 Dec 2001

See all articles by Mark T Bradshaw

Mark T Bradshaw

Boston College

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Richard G. Sloan

University of Southern California - Leventhal School of Accounting


Existing research indicates that firms with high accruals are more likely to experience future earnings problems, but that investors' expectations, as reflected in stock prices, do not appear to anticipate these problems. In this paper, we directly examine the published opinions of two types of professional investor intermediaries to see if they provide investors with information concerning the future earnings problems experienced by firms with high accruals. First, we examine the earnings forecasts of sell-side analysts. We show that analysts' earnings forecasts do not incorporate the predictable future earnings declines associated with high accruals. Second, we examine the behavior of independent auditors. We find no evidence that auditors signal the higher likelihood of GAAP violations associated with high accruals through either their audit opinions or through auditor changes. Overall, our evidence indicates that analysts and auditors do not alert investors to the future earnings problems associated with high accruals, thus corroborating previous findings that investors do not appear to anticipate these problems.

Keywords: Accruals, Analysts, Auditors, Capital markets

JEL Classification: G14, G29, M41, M49

Suggested Citation

Bradshaw, Mark T and Richardson, Scott Anthony and Sloan, Richard G., Do Analysts and Auditors Use Information in Accruals?. Journal of Accounting Research, Vol. 39, No. 1, pp. 45-74, June 2001. Available at SSRN:

Mark T Bradshaw

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Scott Anthony Richardson

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Richard G. Sloan (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

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