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This study traces the development of accounting models in capturing corporate earnings management behaviour, with particular focus on discretionary accruals. The primary reason is to shed light on whether changes in accounting model can improve the detection of earnings manipulation and whether there exists any industry bias towards such behaviour. Using 5,947 firm-year observations of Australian sample of listed firms for 8-year period from 1999 to 2006, this study tests and compares earnings management behaviour across wide industries by using Jones Model, Modified Jones Model, Cash Flow Modified Jones Model, and Performance Adjusted Technique. The results show that Performance Adjusted Technique outperforms over other models in providing an improved way of detecting earnings management. Moreover, a high magnitude of earnings management is found in Energy, Industrials, Health Care, Information Technology and Telecommunication & Utilities. Industry evidence on earnings management may prompt regulators to reinforce corporate governance and require additional disclosure from some industries and further examine the extent to which disclosed financial information distorts the information underlying the true economic performance. |
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