Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

 
2007 Annual International CHRIE Conference & Exposition 
54
Total accrualsi = 1/Ai + (
Δ
Revenue – 
Δ
Account Receivable)i + PPEi + 
ε
i
Total accrualsi = Net Incomei – Net Operating Cashi 
Teoh’s current accruals approach employs the similar principle. The only difference between the models is 
the calculation of extracting accruals. Subtracting Cash from Current Assets estimates current accruals, and then the 
authors subtract current liabilities before adding Debt in Current Liability component.
Toeh Model:
Current accrualsi = 1/Ai + (
Δ
Revenue – 
Δ
Account Receivable)i + 
ε
i
Current accrualsi = Current asseti – Cashi – Current liabilityi + Debt in Current liabilityi 
TA is total accruals accumulated over the life of a firm i in year t
Δ
Revenue is the changes in the total sales revenue for firm i from year t to year t+1
Δ
Account Receivable is changes from year t to year t+1
PPE is Property, Plant and Equipment at year t 
A it-1 is total wealth from firm i in year t
ε
i is the proxy for the discretionary accruals representing firm related earnings management portion
Once the authors obtain discretionary accruals from estimating two separate regressions, and conduct T-
Test for mean differences between recessions vs. non-recession periods with respect to residuals.