Discretionary-accruals models and audit qualifications

The primary goal of this study is to evaluate the ability of the Cross-sect ional Jones Model and the Cross-sectional Modified Jones Model to detect ea rnings management vis-A-vis their time-series counterparts by examining the association between discretionary accruals and audit qualifications. These two cross-sectional models have not been formally evaluated by prior resea rch, and their use may offer certain advantages to investors and researcher s over their time-series counterparts. A sample of 173 distinct firms with qualified audit reports and a matched-pair control sample with clean audit reports are used. Only the two cross-sectional models are consistently able to detect earnings management. One limitation of this study is that its fi ndings merely indicate the superiority of the cross-sectional models vis-a- vis their time-series counterparts in an audit qualification setting, not v alidate either the former or the latter. (C) 2001 Elsevier Science B.V. All rights reserved.