Standard Jones and Modified Jones: An Earnings Management Tutorial

Abstract

Context: measurement of earnings management usually requires multi-step models for computation. After examining the literature through bibliometrics studies, literature review, and research databases, we found that the Standard Jones model and its subsequent modifications are those that have more prominent use. Much of this research is potentially interesting for business theories related to earnings quality and accounting manipulation; however, it is difficult to be understood by junior researchers and practitioners, because they are not clearly described in the literature or the steps may be easy to confuse. Objective: in this tutorial, we present several key concepts about earnings management and explain, step by step, how to measure it. Method: our tutorial considers measurement using the following models: Standard Jones, Modified Jones, Modified Jones with return on assets (ROA), and Modified Jones using Cash Flows and Accruals Reversals. Conclusions: our main contribution with this tutorial is to provide a step-by-step guide for future studies, so that they can be more comparable with each other when using measurement methods of earnings management.

Correlation between Earnings Management and Financial Distress among Selected Firms in Kenya

“…Its applicability to identify discretionary accruals from total accruals is contextual. According to the model, the earnings interest variable is earnings before taxes since managers make some accrual-based decisions to decrease the earnings that will be reported (Costa & Soares, 2022). The factors needed to determine discretionary accruals can all be found in nancial statements such as the Statement of Financial Position, Statement of Income, and Statement of Cash Flows.…”

“…Discretionary accruals are often used as a surrogate to evaluate the negative effects of earnings management, including the opportunistic manipulation techniques (Costa & Soares, 2022). Therefore, the higher the discretionary accruals, the higher the probability of earning management.…”

Custos Considerados Na Escolha Das Modalidades De Gerenciamento De Resultados: Estudo Empírico Em Empresas Listadas Na B3

“…Tal modelo foi alvo de estudo por Dechaw et al (1995), promovendo nele alterações, pelo aprimoramento da mensuração dos accruals discricionários. Esse segundo modelo é denominado Jones Modificado, sendo frequentemente considerado nos estudos recentes sobre a manipulação de resultados por accruals (Costa & Soares, 2022).…”