This study examines discretionary accruals in financial distressed firms that haveundertaken debt restructuring negotiation of 38 troubled listed firms on the StockExchange of Thailand during the recent financial crisis in Thailand (1998-1999). Twoestablished models: Jones (1991) and Modified Jones (Dechow, Sloan, and Sweeney,1995) are used for detecting discretionary accruals. The results provided in this papersuggest that the managers of financial distressed firms have incentives to adoptincome-decreasing accruals during the year surrounding negotiations with lenders fordebt restructuring. We find evidence that the magnitude of discretionary accruals isstatistically significantly negative in the year of negotiation. However, these accruals arenot significantly different from those of control firms which have not undertaken debtrestructuring negotiation during the same period but experienced similar financialperformance. The findings suggest that distressed firms whether undertaken debtrestructuring negotiation adopt income-decreasing accrual during the crisis period(1998-1999).