The Role of Accounting Accruals Components as Measures of Firm Performance

Abstract

This study attempts to examine the information contents of the operating accruals and its components. Further, this study analyzes the characteristics of cash flow and the accounting accruals. A representative sample of Jordanian companies from the industrial and the service sectors, listed on Amman Stock Exchange, is used over the period 1989 – 2001. Empirical results show negative correlation between accounting accruals and the corresponding cash flow measures suggesting a chance for income smoothing based on discretionary accruals. Moreover, this study shows that the operating accounting accruals and its components improve the ability of earnings to reflect company performance with different extents. The superiority was to the short term operating accruals over the long-term components in improving the ability of earnings to reflect the company performance.