Accounting is imperfect, leading to errors in financial reporting. This paper links accounting errors to firms …' incentives to bias reported earnings. We hypothesize that while errors discourage reporting bias by lowering earnings' value …-shaped relationship between an industry's incidences of intentional and unintentional misstatements, our primary proxies for reporting …

detect. Our results highlight the imperfectness of accounting, advance understanding of firms' reporting incentives, and shed …

reporting bias. In our model, the observed cost of a restatement conveys information to the manager about the true reputation … manager an opportunity to learn about the true cost of reporting bias, and he only updates his biasing strategy if the … observed cost differs from his expectation. Consistent with this prediction, we find that firms' reporting bias is decreasing …