Research

Working Paper

Do income-statement line items and their comparability mitigate classification shifting?

Authors: Lidong Cui, Steve Lin

Under Review, The Accounting Review

Presented at: University of Memphis, 2024 Southwest Regional Meeting, 2024 Spark Meeting, 2024 JAAF Conference, 2025 Hawaii Accounting Research Conference, 2025 FARS Midyear Meeting, 2025 AAA Annual Meeting (Scheduled)

Abstract: This study examines how the accounting line items reported on the income statement influence earnings management through classification shifting. Using data from the 2003-2023 period, we find that more accounting line items reported on the income statement help mitigate classification shifting. We also document that more comparable income line items among peer firms in the same industry further mitigate classification shifting.

Does Income Statement Presentation Affect Earnings Management?

Authors: Abhijit Barua, Lidong Cui, Steve Lin, and Andrew Sbaraglia

Presented at: University of Memphis, 2024 Spark Meeting, 2024 JAAF Conference, 2025 AAA Annual Meeting (Scheduled)

Abstract: Prior research provides evidence that greater financial reporting transparency facilitates the detection of earnings management by financial statement users. This increased risk of detection should reduce the level of earnings management. We test this conjecture by analyzing the association between income statement format and earnings management. The FASB and the IASB have jointly issued several exposure drafts and conceptual frameworks to advocate for more cohesive and transparent financial statement presentation (2010, 2021, and 2023). Our findings provide direct evidence of how income statement presentation may affect the level of earnings management.