The Association between Changes in Accounting Estimates and Accounting Restatements

43 Pages Posted: 16 May 2018

See all articles by Philip Beaulieu

Philip Beaulieu

University of Calgary

B. Louise Hayes

University of Guelph - Gordon S. Lang School of Business and Economics

Lev Timoshenko

University of Calgary - Haskayne School of Business

Date Written: November 27, 2017

Abstract

This paper investigates the relationship between changes in accounting estimates and subsequent restatements. Theory suggests that depending on the underlying reason for an estimate change, this relationship can be either negative (for changes in estimates made in response to new developments or management having obtaining new information) or positive (for changes in accounting estimates made with an objective of managing earnings or changes that are not reliably estimated and are poorly audited). We hypothesize and find a positive relationship between changes in estimates and restatements. There is also support for the prediction that the presence of a change in accounting estimate(s) is associated with an increased likelihood of subsequent restatement to correct intentional misstatement. The findings of the study are of interest to accounting academics, regulators, and audit practitioners.

Keywords: changes in accounting estimates, financial restatements, financial reporting quality

JEL Classification: M40

Suggested Citation

Beaulieu, Philip and Hayes, B. Louise and Timoshenko, Lev, The Association between Changes in Accounting Estimates and Accounting Restatements (November 27, 2017). Available at SSRN: https://ssrn.com/abstract=3170603 or http://dx.doi.org/10.2139/ssrn.3170603

Philip Beaulieu (Contact Author)

University of Calgary ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-7304 (Phone)
403-282-0095 (Fax)

B. Louise Hayes

University of Guelph - Gordon S. Lang School of Business and Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

Lev Timoshenko

University of Calgary - Haskayne School of Business ( email )

2500 University Dr NW
Calgary, Alberta T2N 1N4
Canada

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