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The Changing Landscape of Accrual Accounting

The authors’ objective is to explore the temporal changes in the correlation between the cash flow from operations and the accounting accruals. They find that non-timing-related accruals offset the generally accepted negative relationship between cash flows and accruals. The traditionally held view—that a strong cash flow/accrual relationship is a measure of earnings quality—no longer holds. The attenuated correlation is partially the result of economic shocks and the dominant impact of nonrecurring and non-operating items on cash flows and earnings.

Summarized by Marla Howard, CFA

Original Article published on Journal of Accounting Research, Vol. 54, No. 1 (March 2016): 41-78

Authors: Robert M. Bushman, Alina Lerman, and X. Frank Zhang

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