Errors in estimating accruals: The role of accrual measurement

There are different ways in which accruals are measured in academic research. Ohlson (2014) provides a conceptual construct of accruals as the change in non-cash assets and liabilities. This measure includes accruals that are less manipulated for earnings management purposes and may be classified as discretionary accruals since they are not controlled in well-known models. This can lead to errors in the estimation of discretionary accruals (earnings management index in a wide range of accounting research). In accounting research, discretionary accruals are commonly used as an indicator of earnings management. The purpose of this study is to investigate type one error due to how accruals are measured in the test of earnings management. to investigate this problem in this study Jones (1991) and Dechow and Dichev's ( 2002) models, are examined using 157 firms listed in Tehran Stock Exchange from 2007 to 2018 under two different ways of accrual measurement approaches (balance sheet vs cash flow approaches). Findings show that the difference due to the measurement approach is classified as discretionary accruals. However, the simulations performed for the test of earnings management do not show an unacceptable type one error at the 95% confidence level for any of these approaches, suggesting that researchers can rely on Ohlson’s structure in measuring accruals.