Unbilled Receivables, Loss Allowances and Earnings Management

Kyung-Heon Kwon, Namryoung Lee

Abstract

This paper analyzes results on the effect of unbilled receivables on earnings management. Although unbilled receivables are accounts that essentially arise in order-based industries such as construction or shipbuilding, they are considered to be centerpieces requiring attention because they can be interpreted as a sign of accounting fraud. This study analyzes two relationships: unbilled receivables and earnings management and unbilled receivables with loss management and earnings management during the period from 2010 through 2016. The results reveal that while companies conduct earnings management using unbilled receivables, different patterns are demonstrated in cases where loss allowances are established even when there are unbilled receivables.