Evaluating the Relation between Discretionary Accruals and Earnings Quality

In this research, the relation between accruals and earnings quality has been evaluated. We examine factors like earnings quality, operating cash, earnings management and earnings sustainability in relation with discretionary accruals. We have used Jones modified model to examine discretionary accruals, and forward-looking model to estimate earnings quality. In this research, regression method and Spss software were used to analyze data. Statistical population of this research consists of all the companies listed in stock exchange in 2001–2005 which includes a sample of 71 companies. Results of this research demonstrate that discretionary accruals and earnings quality are related negatively and inversely, it means that when discretionary accruals increase, earning quality decreases. There is also a reverse and negative relation between discretionary accruals and earnings sustainability and also between discretionary accruals and operating cash. Finally, we can say that there is a significant relation between discretionary accruals and earnings management.