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Guan, L, Skousen, CJ and Wetzel, TS (2005)

Unusual Patterns in Reported Earnings: Additional Evidence

Journal of Forensic Accounting 6(2), pp. 317-332.

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Abstract: Using Benford’s law, this study extends Thomas (1989) and documents pervasive evidence that managers of U.S. firms tend to engage in earnings manipulative activities of rounding earnings numbers to achieve key reference points. Similar to Thomas (1989), we find that the first digit of earnings numbers is often emphasized by the management. We also find that key reference points are not limited to the first digit. The second, third, or even fourth digits are sometimes used as the reference points of the rounding earnings behavior. Finally, our results show that the incentives of rounding earnings numbers are negatively associated with the distance of pre-rounded earnings to the next reference point. The findings of the study have significant implications to external auditors and the audit committees of the firms.

@article{, AUTHOR = {Liming Guan and C. J. Skousen and T. S. Wetzel}, TITLE = {Unusual Patterns in Reported Earnings: Additional Evidence}, JOURNAL = {Journal of Forensic Accounting}, YEAR = {2005}, VOLUME = {6}, NUMBER = {2}, PAGES = {317--332}, }

Reference Type: Journal Article

Subject Area(s): Accounting