• DOI:10.1111/JOAR.12000
• Corpus ID: 38000322

The Stewardship and Valuation Implications of Accrual Accounting Systems

@article{Drymiotes2012TheSA,
  title={The Stewardship and Valuation Implications of Accrual Accounting Systems},
  author={George Drymiotes and Thomas Hemmer},
  journal={Accounting Theory - Analytical Models eJournal},
  year={2012},
  url={https://api.semanticscholar.org/CorpusID:38000322}
}

• George Drymiotes, T. Hemmer
• Published 31 October 2012
• Business, Economics
• Accounting Theory - Analytical Models eJournal

In this paper we explore the role of accruals in determining “earnings quality” from both a stewardship and a valuation perspective. We show that the valuation and stewardship qualities of accrual accounting are maximized by either an “aggressive” or a “conservative” accrual strategy. Furthermore, accrual strategy choices can be delegated to management as it does not benefit by implementing a strategy that is not in the best interests of the shareholders. We also investigate the implications of… 

In this paper we explore the role of accruals in determining “earnings quality” from both a stewardship and a valuation perspective. We show that the valuation and stewardship qualities of accrual accounting are maximized by either an “aggressive” or a “conservative” accrual strategy. Furthermore, accrual strategy choices can be delegated to management as it does not benefit by implementing a strategy that is not in the best interests of the shareholders. We also investigate the implications of accrual strategies for standard empirical measures of “earnings quality”: regression coefficients and R-squares from price-earnings and market-to-book regressions. We show that such measures respond differently, and in some cases adversely, to the kind of strategies that make accounting constructs more correlated with the underlying economic activities of firms.