Multiple Control Systems, Accrual Accounting, and Earnings Management, Journal of Accounting Research
The article looks at the interaction of financial reporting systems with contracting systems using a principal-agent model. Reporting discretion is determined in a trade-off between the financial reporting system and the contracting system as well as the owner's decision of what is optimal. Reporting of a firm's economic earnings is termed truthful reporting while reporting discretion is looked at as earnings management. The manager manipulates accruals and economic earnings. The principal-agent model deals with moral hazard over managerial reporting with the contracting system in order to discipline reporting behavior.
John H. Evans, Swaminathan Sridharan
Evans, H. John, and Swaminathan Sridharan. 1996. Multiple Control Systems, Accrual Accounting, and Earnings Management. Journal of Accounting Research. 34(1): 45-65.