Journal of Business Finance & Accounting, 36(9) & (10), 1087–1116, November/December 2009, 0306-686X doi: 10.1111/j.1468-5957.2009.02171.x The Usefulness of Measures of Consistency of Discretionary Components of Accruals in the Detection of Earnings Management Salma S. Ibrahim ∗ Abstract: Prior research has shown the prevalence of measurement error in models used to estimate aggregate discretionary accruals. In these models, the incremental information content of the various components of accruals is ignored. Limited prior research and data gathered from firms under Securities and Exchange Commission (SEC) litigation indicate that managers use either one or more than one component of accruals simultaneously, in a consistent way to manipulate bottom-line earnings in a given direction. I propose two measures that capture the consistency between the discretionary components of accruals and test their significance in earnings management (EM) detection in firms that have artificially added accrual manipulation and firms that were targeted by the SEC for accrual manipulation. There is evidence that this information is incrementally useful in detecting EM. This finding paves the way for improvements in the discretionary accruals measure by including consistency information from the components of aggregate accruals. Keywords: earnings management, discretionary accruals, Jones model, measurement error, components of accruals 1. INTRODUCTION Studies of earnings management (hereafter EM) aim at distinguishing between firms that are said to have ‘managed earnings’ and those that follow the neutral operation of their business. 1 The most commonly used approach to test for EM is using the ∗ The author is from Morgan State University. This paper is based on her dissertation at the University of Maryland. She gratefully acknowledges the help of her committee members: Martin Loeb, Partha Sengupta, Taewoo Park, Bart Landry and especially her committee chair, Oliver Kim. The paper has also benefited from comments from Myojung Cho, and workshop participants at the 9 th Symposium on Ethics in Accounting, the 2005 annual AAA meeting, and the 2006 Midwest Regional AAA conference. She would also like to thank the editor, Andrew Stark, and an anonymous referee for valuable comments that shaped the current version of the paper. All remaining errors are the author’s own. (Paper received August 2008, revised version accepted July 2009, Online publication November 2009) Address for correspondence: Salma S. Ibrahim, Earl Graves School of Business, Morgan State University, McMechen Hall, Room 614, 1700 E. Cold Spring Lane, Baltimore, MD 21251, USA. e-mail: salma.ibrahim@morgan.edu 1 Earnings management in the context of this study is defined as ‘the intentional manipulation of accruals in order to maximize the managers’ utility and/or the market value of the firm’. C  2009 The Author Journal compilation C  2009 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. 1087 Journal of Business Finance & Accounting