Innate and discretionary accruals quality and corporate governance


  • The authors acknowledge with thanks the helpful comments of Mike Bradbury the deputy editor, two anonymous referees, Rashad Abdel-khalik, Peter Baxter, Jere Francis, David Gadenne, Kathleen Herbohn, Leeanne Hodgson, Janice Hollindale, Alan Kilgore, Majella Percy, Farshid Navissi, Tony Tinker and workshop participants from the University of the Sunshine Coast, the Annual Conference of the Accounting and Finance Association of Australia and New Zealand, Sydney, July, 2008 and World Accounting Frontiers Series, University of Macau, July, 2009.


This paper extends previous research on the association between corporate governance mechanisms and accruals quality. We derive measures of the discretionary and innate components of accruals quality and regress them against corporate governance characteristics. For discretionary accruals, we find use of a Big 4 audit firm and a larger audit committee as the primary governance mechanisms associated with higher accruals quality. For innate accruals quality, we find that higher quality is associated with an independent board of directors, a larger, more independent and more active audit committee, and use of a Big 4 audit firm. Our findings suggest a stronger relation between sound governance mechanisms and innate accruals quality than discretionary accruals quality.