Download or read book Auditor Sensitivity to Earnings Management written by D. Eric Hirst and published by . This book was released on 1994 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Auditor Sensitivity to Real Earnings Management written by Benjamin P. Commerford and published by . This book was released on 2017 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Differentiating real earnings management (REM) from normal business decisions poses a unique challenge for auditors, researchers, and investors. The ambiguity associated with REM, and the fact that REM does not violate GAAP, may explain why its use is on the rise. While some assert that auditors are not, and should not be, concerned with REM, recent research suggests that REM may influence some auditor judgments. Using Correspondent Inference Theory as our theoretical framework, we extend REM research by investigating the ways in which auditors respond to REM and how auditors deal with the intrinsic ambiguity associated with REM. We administer a 3x2 between-subjects experiment to 113 highly-experienced auditors, manipulating the level of ambiguity surrounding the observed REM (Explicit REM, Potential REM, or No REM) and the earnings context in which the client engages in REM (the client beat or missed the consensus earnings forecast). We find that auditors respond to REM by lowering assessments of management tone (i.e., management's commitment to a culture of high ethical standards), being more likely to discuss the issue with the audit committee, and being less likely to retain the client. Auditors respond to Explicit REM regardless of the earnings context, but respond to Potential (i.e., ambiguous) REM only when the client beats the forecast. Finally, we find that management tone mediates the relation between REM and auditor responses, even after controlling for various audit-related risks. Thus, for auditors, REM appears to be primarily a “people” issue, as REM provides a negative signal about management.

Download or read book Bank based and Market based Financial Systems written by Asl? Demirgüç-Kunt and published by World Bank Publications. This book was released on 1999 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Regulation and Supervision of Banks Around the World written by James R. Barth and published by World Bank Publications. This book was released on 2001 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: This new and comprehensive database on the regulation and supervision of banks in 107 countries should better inform advice about bank ewgulation and supervision and lower the marginal cost of empirical research.

Download or read book The Effect of Audit Quality on Earnings Management written by Connie L. Becker and published by . This book was released on 1997 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the relation between audit quality and earnings management. Consistent with prior research, we treat audit quality as a dichotomous variable and assume that Big Six auditors are of higher quality than non-Big Six auditors. Earnings management is captured by discretionary accruals that are estimated using a cross-sectional version of the Jones (1991) model. Prior literature suggests that auditors are more likely to object to management's accounting choices that increase earnings (as opposed to decrease earnings) and that auditors are more likely to be sued when they are associated with financial statements that overstate earnings (as compared to understate earnings). Therefore, we hypothesize that clients of non-Big Six auditors report discretionary accruals that increase income relatively more than the discretionary accruals reported by clients of Big Six auditors. This hypothesis is supported by evidence from a sample of 10, 379 Big Six and 2, 179 non-Big Six firm-years. Specifically, clients of non-Big Six auditors report discretionary accruals that are, on average, 1.5 to 2.1 percent of total assets higher than the discretionary accruals reported by clients of Big Six auditors. Also, consistent with earnings management, we find that the mean and median of the absolute value of discretionary accruals are greater for firms with non-Big Six auditors. This also indicates that lower audit quality is associated with more quot;accounting flexibility.quot.

Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008-08-06 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?

Download or read book The Effect of Non Strategic Risk of Error on Auditor Sensitivity to Managers Reporting Incentives in a Multi Account Setting written by Dereck Barr-Pulliam and published by . This book was released on 2016 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effects of making multiple contemporaneous risk assessments on auditor sensitivity to the strategic and non-strategic risk related to managers' financial reporting decisions. We address our research question using a 2x2 between-subjects experiment conducted under the tenets of experimental economics in a multi-account setting. We manipulate whether the two accounts differ in non-strategic risk. We find that when auditors allocate audit resources among accounts that differ in the non-strategic risk of error, auditors will use that difference as a heuristic basis for allocating resources among the accounts, and they will be relatively insensitive to strategic aspects of the audit including the client managers' financial reporting incentives. However, when financial statement accounts do not differ in non-strategic risk, auditor resource allocations are more sensitive to strategic information such as managers' penalties for detected misreporting. Consistent with the neglect of probability literature in psychology, we also find that even when auditors attend to managers' incentives, they do not respond as predicted by game theory but instead increase audit effort when managers' face large penalties for misreporting compared to when those penalties are more modest. This study is of interest to accounting academics, auditors, and regulators.

Download or read book The Effect of Earnings Management on Auditor Litigation written by William Guy Heninger and published by . This book was released on 1997 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Earnings Management Pressure on Audit Clients written by Nathan J. Newton and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates whether auditors respond to earnings management pressure created by analyst forecasts. Analyst forecasts create an important earnings target for management, and professional standards direct auditors to consider how this pressure could affect their clients. Using annual analyst forecasts available during the planning phase of the audit, I examine whether this form of earnings management pressure affects clients' financial statement misstatements. Next, I investigate whether auditors respond to earnings forecast pressure through audit fees and reporting delay. I find that higher levels of analyst forecast pressure increase the likelihood of client restatement. I also find that auditors charge higher audit fees and delay the issuance of the audit report in response to pressure from analyst expectations. Finally, I find that when audit clients are subject to high analyst forecast pressure, a high audit fee response by auditors mitigates the likelihood of client misstatements. The electronic version of this dissertation is accessible from http://hdl.handle.net/1969.1/151105

Download or read book How and why Does Real Earnings Management Affect Auditors Evaluations of Management s Estimates written by Benjamin P. Commerford and published by . This book was released on 2015 with total page 220 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research often asserts that, because real earnings management (REM) does not violate Generally Accepted Accounting Principles (GAAP), it is not likely to draw auditor scrutiny. However, informed by Correspondent Inference Theory, I predict and find that observing REM can affect auditors' decisions in audit areas unrelated to REM. This study reports the results of an experiment in which auditors evaluate quantitatively immaterial audit differences arising from management's subjective estimates. I manipulate the presence versus absence of REM, and whether or not the audit difference affects the client's ability to meet an earnings target (i.e., qualitative materiality). Results indicate that, when a quantitatively immaterial audit difference affects the client's ability to meet an earnings target, auditors have a higher propensity to propose an adjustment. Further, regardless of whether or not the audit difference is qualitatively material, auditors are more likely to constrain management's estimates in the presence of REM. Finally, consistent with the notion of a cascading effect of dispositional inferences, I find that auditors' perceptions regarding the aggressiveness of management's disposition mediate the effect of REM on auditors' adjustment decisions. Additional analyses indicate that, when the audit difference is qualitatively material or when REM is present (or both) auditors have a heightened concern that management's estimates are biased. This study contributes to the literature by demonstrating that auditors' altered perceptions, stemming from observing REM, can affect their treatment of audit differences and, ultimately, impact the financial statements.

Download or read book Managing Audits to Manage Earnings written by Benjamin Labrie Luippold and published by . This book was released on 2009 with total page 154 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effect of Earnings Management Constraints on Management Earnings Forecasts written by Tze Yuan (David) Lau and published by . This book was released on 2016 with total page 430 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis examines the role of earnings management constraints, as imposed by firms having higher-quality auditors and lower accounting flexibility at the beginning of the year, in managers’ ability to report less negative earnings surprises from their earnings forecasts. Earnings surprises from management earnings forecasts arise when firms’ realised earnings exceed or fall below the expected earnings of firms’ managers. This thesis argues that managers can report less negative earnings surprises through the use of two techniques: (1) upward earnings management (so that the realised earnings exceed the expected earnings); and (2) downward earnings expectation adjustments (so that the expected earnings fall below the realised earnings). Managers’ incentives to choose upward earnings management over downward earnings expectation adjustments decrease with the degree of earnings management constraints at year t-1. This thesis hypothesises that (1) ceteris paribus, firms with higher-quality auditors at year t-1 are more likely to use downward earnings expectation adjustments in order to report less negative earnings surprises for year t; and (2) ceteris paribus, firms with lower accounting flexibility at year t-1 are more likely to use downward earnings expectation adjustments in order to report less negative earnings surprises for year t. These hypotheses are tested in a unique economy, Japan, where nearly all firms’ managers provide earnings forecasts. Univariate and multivariate analyses of this thesis provide evidence that supports the following conclusions. First, managers of firms with higher-quality auditors and lower accounting flexibility at the beginning of the year are associated with less negative earnings surprises at the end of the year. Second, managers of firms with higher-quality auditors at the beginning of the year use downward earnings expectation adjustments, although the magnitude of these adjustments is lower than the adjustments by firms with lower-quality auditors at the beginning of the year. Third, managers of firms with lower accounting flexibility at the beginning of the year do not consistently use downward earnings expectation adjustments throughout the year to report less negative earnings surprises. Specifically, these firms are more likely to use downward earnings expectation adjustments at the second quarter of the year. Additional tests are conducted to analyse whether the main results are sensitive to alternative specifications of the model. The scope of these tests also extends to other quality aspects of management earnings forecasts and auditing, namely, forecast accuracy and auditor switching, respectively. Overall, these additional analyses indicate that the main results hold after the following empirical considerations are made: (1) self-selection bias; (2) alternative deflators for the response variables; and (3) alternative measures of audit quality and accounting flexibility. The analysis of forecast accuracy reveals that managers of firms with higher-quality auditors at the beginning of the year are more likely to issue accurate earnings forecasts. However, managers of firms with lower accounting flexibility at the beginning of the year are less likely to issue accurate earnings forecasts. The analysis of auditor switches shows firms that switch from lower-quality auditors to higher-quality auditors at the beginning of the year are more likely to report less negative earnings surprises.

Download or read book Internal Audit Quality and Earnings Management written by Douglas F. Prawitt and published by . This book was released on 2010 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Internal auditors often perform work that is relevant to their host entities' financial reporting processes, yet little research attention has focused on the effects of internal auditing on companies' external financial reporting. Using a unique and previously unavailable data set, we investigate the relation between internal audit function (IAF) quality and earnings management. We measure IAF quality using a composite measure comprising six individual components of IAF quality based on SAS No. 65, which guides external auditors in assessing the quality of an IAF with respect to its role in financial reporting. Earnings management is measured using two separate proxies, (1) abnormal accruals and (2) the propensity to meet or barely beat analysts' earnings forecasts. We find evidence that IAF quality is associated with a moderation in the level of earnings management as measured by both proxies.

Download or read book Earnings Management and Auditor Quality written by Savita Sahay and published by . This book was released on 2014 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the relationship between a firm's demand for different quality auditors and opportunities for earnings management.In our model, the firm simultaneously chooses the bias it introduces into its pre-audited earnings and the quality of its auditor. We show that firms that choose a high level of bias also choose a low-quality auditor, even though the market-maker makes a correction for the level of residual bias in audited reports. Firms that choose a low level of bias choose a high-quality auditor. We also study the effect of changes in the regulatory environment on the market equilibrium. Our analysis shows that stricter regulation leads to more firms choosing low-quality auditors, thus it is not in the interest of high quality auditors to support such measures.

Download or read book Auditors Reactions to and Companies Control of Classification Shifting written by Yinghong Zhang and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Business Administration/Accounting

Download or read book Causes and Consequences of Audit Shopping written by Wallace N. Davidson and published by . This book was released on 2005 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Companies change auditors for a variety of reasons. At one end of the continuum, companies change auditors to improve operating performance. At the other, managers change auditors to enhance their own position. If auditor changes are driven by managerial opportunism, companies may increase their level of earnings management after the change. In this paper we reexamine prior research in earnings management that surround auditor changes (DeFond amp; Subramanyam, 1998) and extend prior work by examining earnings management and auditor changes while controlling for prior audit opinion. We find that, on average, earnings management does not increase following auditor changes. However, we do find that the level of earnings management is larger for companies that switch from Big Six to non-Big Six auditors following the receipt of a modified audit opinion from their original auditor.

Download or read book Evidence on the Tradeoff Between Real Manipulation and Accrual Manipulation to 25 Pages 26 to 50 Pages 51 to 75 Pages 76 to 100 Pages 101 to 120 written by Amy Yunzhi Zang and published by ProQuest. This book was released on 2000 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: