Modelling the accruals process and assessing unexpected accruals*

this paper). Combining the normal accruals model with the abnormal accruals model (by
substituting expressions (5) and (8) into expression (9)), one yields the following accruals model:
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t1tt1 1, , 1 1,
TACC a CNI CNI a a CNI
t t u, t u, t1 t t1 u, t1
t t t
t u, t1 u, t t1 t u, t1
d CNI CNI d d CNI
m CNI CNI m m CNI
u, t1 u, t u, t1
t t t t t t
As shown in section 2.2, there are different categories of total accruals. This accruals model can
be generalized to different categories of accruals with their respective clean-surplus flow
components and parameters (see Appendix 1 and 2 for derivation). Table 3 summarizes the
accruals model for total accruals, total working capital accruals, non-current operating accruals,
operating accruals, financing accruals, and short-term accruals used in the Jones model.
[Table 3 about here]
The different accruals models in table 3 look very similar to the one in (10) with several
t
exceptions. Firstly, there is an operating cash flow bias in total working-capital accruals ( TWC )
t
and an associated investing cash flow bias in non-current operating accruals ( NCO ). This is to
reflect the mis-classification of expenses as assets or revenue as liabilities; or vice versa (see
McVay 2006). For instance, firms that aggressively capitalize research and development
expenses will place the cash outflows as I rather than C; this leads to inflated C that is associated
with lower I for the same period. There is no such cash flow bias in total accruals in (10) because
the biases in C and I exactly offset one another. Secondly, there is no accrual component of
t
accruals in non-current operating accruals ( NCO ). This is because the income statement item
in
t
NCO , depreciation expenses, is similar to deferred components of accruals where
(10)
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