The association between accruals and stock return following FRS3

The purpose of this project is to investigate the correlation between accruals and stock return and further the quality of accounting accruals shown in the financial statements for shareholders to predict their future returns. Specifically, this paper focuses on the accrual anomaly phenomenon in the United Kingdom on the adoption of FRS No.3. Our results show that stock returns can be predicted by accruals attributable to accounting misrepresentations. Generally, our findings support the information disclosure regarding to FRS No.3. Also, the results are in the line with increased accounting disclosure to help to protect investors from inefficiencies and encourage them to be aware of accurate stock prices in the market.