Review of Accounting Studies

, Volume 18, Issue 3, pp 892–898 | Cite as

Discussion of “Implications of the integral approach and earnings management for alternative annual reporting periods”

  • Alastair Lawrence


The paper by Gunny, Jacob, and Jorgensen (Rev Account Stud, 2013) provides evidence on whether the earnings volatility induced by year-end adjusting entries results from the integral method of accounting or from purposeful earnings management. The authors find that the variance and negative skewness of annual fiscal-year earnings is greater than the corresponding attributes of alternative annual earnings ending in the first three quarters and interpret these findings as evidence consistent with earnings management rather than settling up annual earnings under the integral method of accounting. While it is difficult to assess the usefulness of their conclusion due to problematic assumptions inherent in the research design, Gunny et al. (2013) reinforce the importance of assessing earnings performance using rolling annual windows. Specifically, they find that the quality of earnings for the alternative annual earnings is greater than that of fiscal-year earnings, highlighting that financial statement users may benefit from using alternative annual earnings to assess current and future performance.


Integral method of accounting Earnings management Unbiased application of GAAP Earnings quality Alternative annual earnings Write-downs 

JEL Classification

G12 M41 



I am grateful for the comments from Peter Easton, James Ryans, and Richard Sloan.


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Haas School of BusinessUniversity of California at BerkeleyBerkeleyUSA

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