This paper analyzes the problems with the alternative accrual-based models in detecting earnings management. The researcher will focus on comparing the Jones Model and the Modified Jones Model, which are the two most frequently used model in empirical analysis nowadays. Earnings management is a kind of management which uses accounting techniques to meet the executives‟ needs for earnings; it is a widely debated topic, hence it is worth looking at. Experts and professionals in this area found many approaches to detect the earnings management; within these approaches are the accrual-based models which include the modified Jones model, which currently is a favourite model to many researchers. Using OLS model, the author found that sometimes using the Jones models alone cannot solve the problems. The samples used in this paper are the China‟s ST companies (listed companies which made a loss for two years and thus clearly have the motive to manipulate their earnings). This paper also provides some examples of situations which the Jones models cannot handle.
Chen, T. (2010). Analysis on accrual-based models in detecting earnings management. Lingnan Journal of Banking, Finance and Economics, 2. Retrieved from http://commons.ln.edu.hk/ljbfe/vol2/iss1/5