Abstract
There are two methods to income smoothing in the past literature, discretionary accruals and derivatives. The relationship between the discretionary accruals and derivatives is substitute. However, after 2006, Taiwan implemented SFAS No. 34, which relating to fair value and hedge accounting, so we wanted to explore the relationship between the two kinds of modification of income smoothing. We use the component companies of “Taiwan Fifty” but remove financial companies out of our sample. The period of our sample is from 2000 to 2011. We found that after the implementation of SFAS No.34, the relationship between derivatives and accruals gradually weakened. We also found that after the implementation of SFAS No.34, the earnings volatility of companies significantly changed. In general, we believe that significantly change in the accounting rules will affect income smoothing and earnings volatility.