The effect of accrual heterogeneity on accrual quality inferences

63 Pages Posted: 2 Aug 2018 Last revised: 10 Aug 2021

See all articles by Patricia Dechow

Patricia Dechow

USC Marshall School of Business

Chad R. Larson

University of Houston - Department of Accountancy & Taxation

Robert J. Resutek

University of Georgia - J.M. Tull School of Accounting

Date Written: July 25, 2021

Abstract

We investigate the impact of the mixed attribute GAAP measurement model on accrual quality inferences. GAAP rules vary from an income statement ‘matching’ focus to a balance sheet ‘fair-value’ focus. Accrual properties are also affected by the business activity being measured and the activity’s recurrence. Furthermore, accrual measurement is affected by managerial estimation error/manipulation. As a consequence, accruals are heterogenous with predictably different statistical properties. We construct a dataset of more than 100,000 accrual items that Compustat aggregates into data item, FOPO. We classify these accruals into 32 types over a 21-year span. We show that variation in persistence for the 32 accrual types is consistent with our predictions concerning GAAP rules. We provide a model of accruals and show that it is implausible for estimation error of reasonable magnitudes to explain this variation. Finally, we develop a measure of reporting consistency and show its impact on accrual quality inferences.

Keywords: earnings quality, accruals, consistency, persistence, aggregation, disaggregation

JEL Classification: G12, M41

Suggested Citation

Dechow, Patricia and Larson, Chad Russell and Resutek, Robert J., The effect of accrual heterogeneity on accrual quality inferences (July 25, 2021). Available at SSRN: https://ssrn.com/abstract=3223968

Patricia Dechow

USC Marshall School of Business ( email )

Los Angeles, CA 90089-0441
United States

Chad Russell Larson

University of Houston - Department of Accountancy & Taxation ( email )

Bauer College of Business
4800 Calhoun Road
Houston, TX 77204
United States

Robert J. Resutek (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

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