What Is Income Smoothing?

Smoothing the income means that the management uses the accounting adjustment methods such as accruals to smooth the profit in order to conceal the company's actual performance.

Smooth income

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Smoothing returns means that management is hiding

Smoothing the income means deliberately reducing the profit of the statement in the business boom year, transferring it to the loss year, so that the company

There are two main methods for the theoretical world to test the return smoothing:

The first is to combine specific smoothing variables for verification, and calculate the deviation between the disclosed return and the normal return on the time series to see if it is related to some variables with potential for smoothing, such as the study by Beidleman;

The second is the coefficient test method, which determines whether the company has a smooth return on revenue by the ratio of the change in revenue coefficient to the change in sales revenue coefficient in a certain period, such as Albrecht and Richardson.