Critical Evaluation of Accrual Models in Earnings Management Studies

Earnings management is an important part of current accounting studies. Many of those studies concentrate on accruals. This study critically evaluates frequently used accrual models. The Jones model was the first econometric approach to estimating discretionary accruals. Even though it is subject to several limitations, such as model misspecification, omitted-variables, and errors-in-variables problems, no other accrual model consistently outperforms the Jones model. In the absence of an error-free accrual model, studies in earnings management need the trianglization of their findings by using more than one accrual model and other non-econometric approaches, such as an analysis of earnings number distributions.