A large body of accounting research finds that various contracting incentives lead managers to engage in conservative accounting practices. We extend existing research by modeling the impact of extant accounting rules on conservative accounting. Accounting rules typically require assets to be...

We show that accruals consist of at least two distinct underlying processes, one with positive serial correlation and the other with negative serial correlation. We also find that the accrual reversals characterizing the negatively serially correlated process are predominantly good accruals that...