a) Explain the findings of Sloan (1996) in relation to discretionary accruals.(6 marks)

b) Explain the findings of Teoh, Welch and Wong (1998) in relation to abnormal accruals in IPO years. c) Why would company managers sometimes try to overstate earnings? (6 marks) (4 marks)

d) In the context of aggressive accounting as seen in parts (a) to (c) of this question, explain what is meant by mean reversion in accruals. Try to provide an example involving a current accrual and an example involving a non-current accrual. (4 marks)

e) Explain the benefits of accrual accounting. When trying to predict future cash flow and future earnings, would you rather use current earnings or current cash flows? Cite some empirical evidence.