Modelling Receivables and Deferred Revenues to Detect Revenue Management

29 Pages Posted: 13 Jun 2018

See all articles by Jenny Zha Giedt

Jenny Zha Giedt

George Washington University - School of Business

Date Written: June 2018

Abstract

This study develops and calibrates a revenue accruals model. Changes in accounts receivable and deferred revenues are modelled 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 Securities and Exchange Commission. Results imply that researchers, auditors, and regulators interested to detect earnings management should focus on modelling specific accruals. As a practical matter, to detect 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

Suggested Citation

Zha Giedt, Jenny, Modelling Receivables and Deferred Revenues to Detect Revenue Management (June 2018). Abacus, Vol. 54, Issue 2, pp. 181-209, 2018. Available at SSRN: https://ssrn.com/abstract=3194890 or http://dx.doi.org/10.1111/abac.12119

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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