Exploring Reversible and Renewable Dynamics in the Time Series Structure of Accruals

Articles in Press

Document Type : Original Article

Authors

1 Assistant Professor of Accounting, University of Isfahan, Isfahan, Iran

2 Assistant Professor of Accounting, Bojnourd Branch, Islamic Azad University, Bojnourd, Iran

10.22108/far.2025.145063.2124

Abstract

This paper examines the time series characteristics of accruals, focusing on their creation processes and reversal speed. The main hypothesis suggests that shocks to working capital accruals, regardless of their origin, tend to reverse over time, though some are followed by new shocks. A first-order moving average model is employed to predict short-term accrual behavior and capture the reversible nature of these shocks. To test hypotheses, annual data from 200 non-financial companies listed on the Tehran Stock Exchange from 2007 to 2023 were used. The findings indicate that shocks to working capital accruals generally reverse in the next period, although the reversal speed varies. Sales growth shocks tend to reverse quickly and are replaced by new shocks, while working capital fluctuations stabilize more slowly, often taking longer than one period for complete reversal. Notably, in most sampled companies, accrual estimation errors are fully and immediately reversed in the following period. This research underscores the importance of prior estimation errors as a valuable source of information for improving accrual forecasting accuracy.

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Main Subjects

Financial Accounting Research

Articles in Press, Accepted Manuscript
Available Online from 27 May 2025

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History

  • Receive Date: 28 April 2025
  • Revise Date: 07 May 2025
  • Accept Date: 27 May 2025

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