This study examines the impact of accruals and their reversals on the performance of firms by using a sample of 100 non-financial firms registered at Karachi Stock Exchange (KSE). The objectives of the study are to examine the impact of accrual reversals on earnings and to check the impact of accruals on future stock returns, the study also explain the behavior among group and non-group affiliated firms, between foreign and domestic firms, and across industries. Pooled OLS method with Driscoll and Kraay standard errors and Robust Fixed Effect methods are used to achieve the objectives. Accrual reversals effect the earnings of current period as well as earnings of future period positively. This result rejects the perception about the accrual reversals that accrual reversal has no impact on earnings. Accruals predict the future stock returns positively when accruals are measured through cash flow approach which is against the accrual anomaly. It proves that measuring accruals from balance sheet approach may contain estimation errors which may lead to biased results. The study concludes that relationship of accruals and future stock returns remain same among group and non-group affiliation firms, between foreign and domestic firms but it varies across industries. Supervisor:- Dr. Arshad Hassan