Financial Reporting Quality: Aggregate Accruals
Earnings can be decomposed into cash and accrual components. The accrual component (aggregate accruals) has been found to have less persistence than the cash component, and therefore (1) earnings with higher accrual component are less persistent than earnings with smaller accrual component, all else equal; and (2) the cash component of earnings should receive a higher weighting evaluating company performance.
Balance-Sheet-Based Accruals Ratio
Accenture PLC, balance sheet computation of aggregate accruals
US$ in thousands
| Aug 31, 2024 | Aug 31, 2023 | Aug 31, 2022 | Aug 31, 2021 | Aug 31, 2020 | Aug 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Operating Assets | |||||||
| Total assets | 55,932,363) | 51,245,305) | 47,263,390) | 43,175,843) | 37,078,593) | 29,789,880) | |
| Less: Cash and cash equivalents | 5,004,469) | 9,045,032) | 7,889,833) | 8,168,174) | 8,415,330) | 6,126,853) | |
| Less: Short-term investments | 5,396) | 4,575) | 3,973) | 4,294) | 94,309) | 3,313) | |
| Operating assets | 50,922,498) | 42,195,698) | 39,369,584) | 35,003,375) | 28,568,954) | 23,659,714) | |
| Operating Liabilities | |||||||
| Total liabilities | 26,764,115) | 24,786,712) | 24,516,302) | 23,078,729) | 19,579,420) | 14,962,189) | |
| Less: Current portion of long-term debt and bank borrowings | 946,229) | 104,810) | 9,175) | 12,080) | 7,820) | 6,411) | |
| Less: Long-term debt, excluding current portion | 78,628) | 43,093) | 45,893) | 53,473) | 54,052) | 16,247) | |
| Operating liabilities | 25,739,258) | 24,638,809) | 24,461,234) | 23,013,176) | 19,517,548) | 14,939,531) | |
| Net operating assets1 | 25,183,240) | 17,556,889) | 14,908,350) | 11,990,199) | 9,051,406) | 8,720,183) | |
| Balance-sheet-based aggregate accruals2 | 7,626,351) | 2,648,539) | 2,918,151) | 2,938,793) | 331,223) | —) | |
| Financial Ratio | |||||||
| Balance-sheet-based accruals ratio3 | 35.69% | 16.32% | 21.70% | 27.93% | 3.73% | — | |
| Benchmarks | |||||||
| Balance-Sheet-Based Accruals Ratio, Competitors4 | |||||||
| Adobe Inc. | -3.83% | 1.85% | -8.24% | 14.14% | 8.20% | — | |
| Cadence Design Systems Inc. | 39.84% | 11.17% | 26.65% | 4.43% | — | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Fair Isaac Corp. | 6.46% | 12.11% | -3.66% | -6.17% | -0.02% | — | |
| International Business Machines Corp. | 2.79% | 2.42% | 1.55% | -7.39% | — | — | |
| Intuit Inc. | 3.35% | -1.74% | 85.68% | 139.73% | -1.39% | — | |
| Microsoft Corp. | 52.18% | 22.96% | 42.27% | 40.52% | 14.41% | — | |
| Oracle Corp. | 4.30% | 51.77% | 9.90% | 5.62% | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 89.91% | 137.01% | -124.73% | 85.21% | 69.06% | — | |
| Salesforce Inc. | -2.46% | -2.30% | 57.74% | 10.87% | — | — | |
| ServiceNow Inc. | 22.91% | 61.79% | 12.89% | 34.89% | — | — | |
| Synopsys Inc. | 7.85% | 13.85% | 5.01% | 0.36% | 8.40% | — | |
| Workday Inc. | 28.44% | -11.24% | 55.93% | -15.99% | — | — | |
| Balance-Sheet-Based Accruals Ratio, Sector | |||||||
| Software & Services | 26.35% | 18.48% | 29.42% | 16.66% | 200.00% | — | |
| Balance-Sheet-Based Accruals Ratio, Industry | |||||||
| Information Technology | 21.42% | 8.98% | 18.09% | 19.16% | 200.00% | — | |
Based on: 10-K (reporting date: 2024-08-31), 10-K (reporting date: 2023-08-31), 10-K (reporting date: 2022-08-31), 10-K (reporting date: 2021-08-31), 10-K (reporting date: 2020-08-31), 10-K (reporting date: 2019-08-31).
1 2024 Calculation
Net operating assets = Operating assets – Operating liabilities
= 50,922,498 – 25,739,258 = 25,183,240
2 2024 Calculation
Balance-sheet-based aggregate accruals = Net operating assets2024 – Net operating assets2023
= 25,183,240 – 17,556,889 = 7,626,351
3 2024 Calculation
Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 7,626,351 ÷ [(25,183,240 + 17,556,889) ÷ 2] = 35.69%
4 Click competitor name to see calculations.
The analysis of the annual financial reporting quality measures over the reported periods reveals significant trends in net operating assets and accrual-related metrics.
- Net Operating Assets
- The net operating assets exhibit a consistent upward trajectory throughout the years. Starting at approximately 9.05 billion USD in 2020, the figure increased annually, reaching about 25.18 billion USD by 2024. This steady growth suggests a substantial expansion in the company’s operational asset base, indicating possible investments, growth in operational scale, or asset acquisitions.
- Balance-sheet-based Aggregate Accruals
- The aggregate accruals show more volatility in contrast to net operating assets. Initially, the accruals amounted to around 331 million USD in 2020 but surged dramatically to nearly 2.94 billion USD in 2021. After a slight decline in 2022 and 2023, the figure increased again sharply to approximately 7.63 billion USD in 2024. This pattern may suggest fluctuations in non-cash earnings components or changes in accrual accounting policies or operational cycles.
- Balance-sheet-based Accruals Ratio
- The accruals ratio, which expresses aggregate accruals as a percentage of net operating assets, reflects significant variability as well. Starting at a relatively low level of 3.73% in 2020, the ratio spiked to 27.93% in 2021, then declined progressively over the next two years before reaching a peak of 35.69% in 2024. The elevated ratios in 2021 and 2024 indicate periods of increased reliance on accruals relative to operating assets, which could have implications for earnings quality and cash flow reliability.
Overall, the data points to a growing operational asset base accompanied by pronounced fluctuations in accrual levels. The increasing accruals ratio in the most recent year may warrant closer monitoring, as high accruals ratios can sometimes suggest earnings management or changes in the timing of revenue and expense recognition affecting financial statement quality.
Cash-Flow-Statement-Based Accruals Ratio
Accenture PLC, cash flow statement computation of aggregate accruals
US$ in thousands
| Aug 31, 2024 | Aug 31, 2023 | Aug 31, 2022 | Aug 31, 2021 | Aug 31, 2020 | Aug 31, 2019 | ||
|---|---|---|---|---|---|---|---|
| Net income attributable to Accenture plc | 7,264,787) | 6,871,557) | 6,877,169) | 5,906,809) | 5,107,839) | 4,779,112) | |
| Less: Net cash provided by operating activities | 9,131,027) | 9,524,268) | 9,541,129) | 8,975,148) | 8,215,152) | 6,626,953) | |
| Less: Net cash used in investing activities | (7,061,818) | (2,622,470) | (4,260,629) | (4,309,766) | (1,894,519) | (1,755,576) | |
| Cash-flow-statement-based aggregate accruals | 5,195,578) | (30,241) | 1,596,669) | 1,241,427) | (1,212,794) | (92,265) | |
| Financial Ratio | |||||||
| Cash-flow-statement-based accruals ratio1 | 24.31% | -0.19% | 11.87% | 11.80% | -13.65% | — | |
| Benchmarks | |||||||
| Cash-Flow-Statement-Based Accruals Ratio, Competitors2 | |||||||
| Adobe Inc. | -21.90% | -21.73% | -19.93% | 9.21% | -0.48% | — | |
| Cadence Design Systems Inc. | 17.36% | 3.78% | 15.03% | -5.75% | — | — | |
| CrowdStrike Holdings Inc. | — | — | — | — | — | — | |
| Fair Isaac Corp. | -8.60% | -2.41% | -13.92% | -17.25% | -10.25% | — | |
| International Business Machines Corp. | -3.73% | 0.99% | -7.22% | -1.64% | — | — | |
| Intuit Inc. | -8.44% | -8.74% | 25.60% | 58.72% | -34.22% | — | |
| Microsoft Corp. | 30.89% | 5.22% | 13.42% | 17.68% | -8.19% | — | |
| Oracle Corp. | -1.01% | 42.79% | -30.58% | 25.81% | — | — | |
| Palantir Technologies Inc. | — | — | — | — | — | — | |
| Palo Alto Networks Inc. | 33.84% | -37.95% | -196.64% | -68.30% | -488.47% | — | |
| Salesforce Inc. | -8.44% | -8.49% | 21.96% | 10.57% | — | — | |
| ServiceNow Inc. | -7.12% | 15.44% | 8.80% | -21.14% | — | — | |
| Synopsys Inc. | -7.64% | 0.20% | -4.64% | -4.88% | 0.92% | — | |
| Workday Inc. | 34.56% | 18.64% | -0.65% | -18.51% | — | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Sector | |||||||
| Software & Services | 12.10% | 7.37% | 1.97% | 11.15% | -28.80% | — | |
| Cash-Flow-Statement-Based Accruals Ratio, Industry | |||||||
| Information Technology | 6.29% | 1.46% | 2.91% | 8.62% | -15.54% | — | |
Based on: 10-K (reporting date: 2024-08-31), 10-K (reporting date: 2023-08-31), 10-K (reporting date: 2022-08-31), 10-K (reporting date: 2021-08-31), 10-K (reporting date: 2020-08-31), 10-K (reporting date: 2019-08-31).
1 2024 Calculation
Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 5,195,578 ÷ [(25,183,240 + 17,556,889) ÷ 2] = 24.31%
2 Click competitor name to see calculations.
- Net operating assets
- The net operating assets exhibit a consistent upward trend over the five-year period. Starting from approximately 9.05 billion USD in 2020, the value increased steadily each year, reaching about 25.18 billion USD by 2024. This suggests significant growth in the operating asset base of the company, which may indicate expansion in operations or increased capital investment.
- Cash-flow-statement-based aggregate accruals
- The aggregate accruals display notable variability across the years. In 2020, they were negative at around -1.21 billion USD, then shifted to positive values in 2021 and 2022, rising to approximately 1.24 billion USD and 1.60 billion USD respectively. A marked decrease occurs in 2023, with accruals dropping close to zero (-30 thousand USD), before sharply increasing to about 5.20 billion USD in 2024. This irregular pattern indicates fluctuating components of accruals relative to cash flows, which could reflect changes in earnings quality or accounting adjustments.
- Cash-flow-statement-based accruals ratio
- The accruals ratio follows a similar fluctuating pattern as the aggregate accruals. Initially negative at -13.65% in 2020, it shifts to positive territory in 2021 and 2022, remaining relatively stable around 11.8% to 11.87%. In 2023, the ratio nearly nullifies to -0.19%, before significantly rising to 24.31% in 2024. The sharp increase in 2024 indicates a higher proportion of accruals relative to cash flows, which could signal an increased degree of accrual-based earnings or changes in financial reporting quality during that year.