The Changing Role of Accrual Accounting: International Evidence

Under the accrual accounting model, the timing role of accruals leads to a negative correlation between accruals and cash flows. Our study investigates the time-series trend of the timing role of accruals and finds a temporal decline in the magnitude of the correlation between accruals and cash flows in our sample of 51 countries over 1991-2019. This decline is primarily caused by increases in loss firms and operation volatility. Several accounting and economic factors, such as the use of accrual accounting, discretionary accruals, matching between revenues and expenses, IFRS adoption, and accounting connectedness, are positively associated with the strength of the accrual-cash flow relation and therefore decelerate the decline of the accrual timing role. Additional analysis suggests that the decline in accrual timing over time is present regardless of a country's economic growth, legal tradition or institutions, and the extent of the use of accrual accounting.