Detecting earnings management in a Spanish context

The aim of this study is to examine whether different accrual models detect earnings management in a sample of Spanish firms that have received GAAP audit qualifications. The unexpected accruals obtained from the Jones model, the modified Jones model, the Jones working capital model and the modified Jones working capital model are significantly positive, supporting the hypothesis that earnings have been managed upwards. However, the unexpected accruals obtained from the margin model are not significantly positive. We should be cautious in the interpretation of these results because of the almost certainly bias towards the inclusions of the most obvious and spectacular cases of earnings management. Potential extreme financial performance bias can not be ruled out as explanation for these results. An important limitation of this paper is the reduced number of firms that constitutes the estimation sample and also the prediction sample.