Abstract

Prior periodadjustments can be created as a result of changes in policy or basic material misstatement in the financial statements of the past or created. Most of the prior period adjustments in Iranian companies are correcting past mistakes. Existing of errors in the financial statements may indicate manipulation of the profits that are usually applied by managing accruals. In this study, the relationship between discretionary accruals and prior period adjustments were discussed. This paper studies companies in Tehran Stock Exchange during the years1386 to1391. In general, 360 firm-years were studied. Experimental results show that there is a positive relation between discretionary accruals and annual adjustments and there is a negative relation between audit opinion and annual adjustments. Furthermore, the results indicate a relationship between the firm size and the annual adjustments.