Accruals Approach in Income Smoothing and Permanent Earnings Hypothesis

This study applies the Jones model (2005) modified by Kothari, Leone and Wasley (2005) in order to analyze and calculate the discretionary part of the accruals, as to accept or reject the Permanent Earnings Hypothesis for a sample of Bulgarian public companies. The study concludes that Bulgarian companies use discretionary accruals to smooth their incomes, thus offsetting the lower income from the current year with higher (unaccounted) from the previous year and vice versa.