Accruals Estimations Errors and Earnings Quality in Tehran Stock Exchange

This paper investigates the relation between the accruals estimation errors and earnings quality in Tehran Stock Exchange. According to Iran accounting standards to enhance performance measurement, accrual system should be used (like most other parts of the world). However this system in Iran is not as perfect as it should be, since the estimations are not always accurate. It seems as much as the accruals estimation errors increase, the reported net income differs from the actual firm performance. In this circumstance the information content of earnings decreases and the users of the financial statements can rely less on this important component of financial statements in their decision models. In this paper by using Dechow and Dichev (2002) empirical measure of accruals quality I show that the degree of estimation errors of accruals has a significant effect on accruals and earnings quality in Tehran Stock Exchange. Furthermore, by using earnings persistence model, I document that Dechow and Dichev (2002) measure of accrual quality is positively related to earnings persistence in Tehran Stock Exchange