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 The Association between Auditor Litigation and Abnormal Accruals written by William G. Heninger and published by . This book was released on 2003 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Concern that earnings management erodes the quality of financial reporting has prompted the Securities and Exchange Commission to question the role of the external auditor. To help address this concern, this study examines the relation between earnings management and auditor litigation. While prior research on the relation between auditor litigation and total accruals has yielded inconclusive results, I find that the risk of auditor litigation is positively associated with a sharper measure of earnings management, abnormal accruals. Using a larger and more recent sample, this study provides evidence that the probability of auditor litigation increases as clients report more positive (income-increasing) abnormal accruals. This result holds in: (1) univariate analyses, (2) logit analyses that also control for auditor size, client importance to the auditor, length of the auditor-client relationship, client industry, client financial condition, client size, and client growth, and in (3) the subsample of lawsuits alleging wrongdoing in the more recent time period (1984 - 1998).

Download or read book Abnormal Audit Fees and Earnings Management Using Classification Shifting written by Xudong (Daniel) Li and published by . This book was released on 2018 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research has intensively debated whether abnormal audit fees purely indicate audit effort or client-auditor economic bonding (Francis 2011). However, this empirical debate is mostly based on the findings of the associations between audit fees and accrual-based earnings management. Unlike accrual-based earnings management, earnings management through classification shifting does not change the bottom-line numbers and thus involves lower litigation costs. Given the difference in litigation costs between the two forms of earnings management, the effect of abnormal audit fees on the incentives of auditor in dealing with the behavior of earnings management could be different. It is thus interesting to examine how audit fees affect auditors' incentives on their clients' earnings management with potential lower litigation risks.Using data from years 2000-2010, we find a significant and positive cross-sectional association between the magnitude of abnormal audit fees and the level of classification shifting, a result supporting the notion that greater abnormal audit fees allow for more earnings management through classification shifting. This observed result further indicates that using abnormal audit fees to purely measure audit effort or economic bonding might be questionable as the effect of abnormal audit fees on opportunistic accounting practices could differ, depending on the specific form of earnings management activities associated with the level of potential litigation costs.

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 Effects of Audit Quality on Earnings Management and Cost of Equity Capital written by Hanwen Chen and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effects of audit quality on earnings management and cost of equity capital for two groups of Chinese firms: state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs). The differences in the nature of the ownership, agency relations and bankruptcy risks lead SOEs to have weaker incentives than NSOEs to engage in earnings management. As a result, the effect of audit quality in reducing earnings management will be greater for NSOEs than for SOEs. In addition, investors' pricing of information risk as reflected in the cost of equity capital will be more pronounced for NSOEs than for SOEs with high and low audit quality. We find empirical evidence consistent with these hypotheses. Our findings indicate that (1) while high-quality auditors play a governance role in China, that role is limited to a subset of firms, and (2) even under the same legal jurisdiction, the effects of audit quality (in the form of lower earnings management and cost of equity capital) vary across firms with different ownership structures. Our study extends prior research by focusing on the economic consequences of SOEs' and NSOEs' auditor choices and underscores the importance of controlling for ownership type when conducting audit 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 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relation between economic incentives to manage earnings and discretionary accruals and the modifying effects of audit quality on this relation. We hypothesize that incentives to smooth earnings and incentives created by debt agreements motivate managers to strategically bias earnings. However, we expect that earnings manipulation is tempered by the quality of the firm's external auditor. The findings indicate that companies with non-Big Six auditors (a proxy for lower audit quality) report discretionary accruals that significantly increase income compared to companies with Big Six auditors. We also find that managers respond to debt contracting and income-smoothing incentives by strategically reporting discretionary accruals. In addition, companies with incentives to smooth earnings upwards (downwards) report significantly greater income-increasing (decreasing) discretionary accruals when they have non-Big Six auditors. However, we do not find that audit quality affects earnings management that occurs in response to high leverage.

Download or read book Securities Litigation Involving Auditors written by David L. Gilbertson and published by . This book was released on 1997 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters, each of which examines important questions relevant to the securities reform debate. These questions are addressed in the context of securities class action lawsuits, especially those involving auditors. The first chapter investigates some of the charges made by those who claim that the securities laws are being abused and tests several hypotheses reflecting the accounting profession's allegations of "opportunistic" behavior by plaintiffs' attorneys. The second chapter investigates an empirical technique for assessing the relative merits of securities class-action lawsuits, using methodologies developed by previous earnings management researchers. The third chapter assesses the impact of the Supreme Court's Central Bank decision on securities litigation against audit firms.

Download or read book How do Auditors View Managers Voluntary Disclosure Strategy The Effect of Earnings Guidance on Audit Fees written by Gopal V. Krishnan and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this study is to examine the relation between attributes of earnings forecasts issued by managers and audit fees. Although there is an extensive literature on managers' disclosure of earnings forecasts, there is a paucity of research on how auditors incorporate information from these voluntary disclosures. We find that the issuance of an annual or quarterly management earnings forecast in the prior period is positively associated with the current period audit fees. Our results indicate that on average, audit fees are higher by about 7% for firm-years associated with an annual forecast. Among the firms that issue earnings forecasts, we find no association between audit fees and likelihood of updating a previously issued earnings forecast, indicating that auditors do not view such behavior negatively. Further, we find audit fees to be positively associated with the error and the bias (or optimism) in the forecasts for annual forecasts but not for quarterly forecasts. Overall, these results suggest that management's forecast behavior captures higher business risk for the auditor via greater risk of earnings management or litigation risk.

Download or read book Studying the Effect of Audit Quality on the Earnings Management Activities written by Reem J. Almousawi and published by . This book was released on 2008 with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Audit Quality and Earnings Management in France written by Charles Piot and published by . This book was released on 2015 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the effect of audit quality variables on abnormal accruals in the French context. The sample comprises 255 firm-years observations from SBF 120 Index companies (1999-2001). Abnormal accruals are estimated using a Jones cross-sectional Model, as well as a CFO Model (Jones Model controlling for cash flows). They are considered in signed value, as a proxy for accounting conservatism, and in absolute value, as a proxy for the overall earnings management regardless of income-increasing or -decreasing incentives. Multivariate analyses document that: (1) the presence of a Big Five auditor has no effect on the magnitude of abnormal accruals whether considered in signed or absolute value; (2) the presence of an audit committee (but not the committee's independence) is associated with lower signed abnormal accruals, suggesting more conservative accounting earnings; and (3) in contradiction with positive accounting predictions, leverage has a negative effect on signed abnormal accruals. Implications of these findings are discussed in the French setting with respect to, notably, the lower litigation risk of auditors (vs. the US litigation system), the recommendations on audit committees, the duties of corporate directors, and the traditionally significant role of accounting in the protection of debtholders' interests.

Download or read book The Effect of Audit Quality on Earnings Management in the Post SOX Period written by Shaohong Su and published by . This book was released on 2010 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effect of Real Activities Manipulation on Going Concern Audit Opinions for Financially Distressed Companies written by Hongkang Xu and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effect of real activities manipulation (RAM) on auditors' decision of issuing going concern opinions for financially distressed companies. It draws on the theory that auditors perceive RAM as a potential litigation risk and a signal of client firms using other earnings management mechanisms to meet earnings targets (Kim and Park, 2014; Commerford et al., 2014). We find that auditors are more likely to issue going concern opinions to financially distressed clients with aggressive RAM to avert future litigation risk.The findings suggest RAM affects the audit process and leads auditors to report more conservatively.

Download or read book The Impact of Auditor Qualifications on Earnings Management of Companies Listed in Borsa stanbul Industrial Index written by Gökberk Can and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This research aims to reveal whether independent auditor's (as the real person and the legal entity) qualifications (audit firm size, audit opinion, audit gender, audit firm specialization, audit firm rotation, geographical difference) have any effect on earnings management via discretionary accruals and real activities manipulations by using a panel data regression analyses of 162 units over 5 years (2011-2015). According to the results, independent auditor qualifications (audit firm and engagement partner) has no impact on the real activities manipulation. The results show that an independent audit by Big-4 firms has a decreasing effect on discretionary accruals. Earnings management via discretionary accruals increases when the local audit firms conduct the audit. The audit firms with diversified expertise decrease the earnings management via accruals. The results also confirm that disclaimer of opinion signals an increase in the discretionary accruals in Borsa İstanbul.

Download or read book The Association of Earnings Management with Current Returns Current Market Values Future Returns Executive Compensation and the Likelihood of Being a Target of 10b 5 Litigation written by Christopher L. Jones and published by . This book was released on 1998 with total page 290 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effects of Earnings Management on Enforcement Releases and Their Recognition in Audit Fees written by Balthasar Hoehn and published by . This book was released on 2013 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2004 German legislation established the Financial Reporting Enforcement Panel. In 147 cases since then, the panel has ordered the announcement of errors in previously disclosed and audited financial statements of German firms. We use this unique dataset to evaluate the consequences of increasing earnings management over time on enforcement releases and their recognition in audit fees. Ettredge et al. (2010) provide evidence on a phenomenon called 'balance sheet bloat' that is due to income increasing earnings management and later influences the disclosure of misstated financial statements. Thus, the evidence of earnings management recognition in audit fees (Abbott et al. 2006) and the hypothesis of future information content in fees by Stanley (2011) leads us to hypothesize that auditors recognize increasing audit risk in audit fees before the enforcement process starts. We extend related earnings management and audit fee literature by modeling the development of earnings management within the misstatement firms and systematically link it to auditor reactions. We find significant predictive power of different commonly used accrual measures for enforcement releases in the period prior and up to the misstatement period. In this period of time, we also observe an audit fee increase, e.g. the recognition of increased audit risk. We investigate an audit fee effect after the misstatement period but find no significant relation.

Download or read book Auditor Going Concern Reporting written by Marshall A. Geiger and published by Routledge. This book was released on 2021-06-09 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: Auditor reporting on going-concern-related uncertainties remains one of the most challenging issues faced by external auditors. Business owners, market participants and audit regulators want an early warning of impending business failure. However, companies typically do not welcome audit opinions indicating uncertainty regarding their future viability. Thus, the auditor’s decision to issue a "going concern opinion" (GCO) is a complex and multi-layered one, facing a great deal of tension. Given such a rich context, academic researchers have examined many facets related to an auditor’s decision to issue a GCO. This monograph reviews and synthesizes 182 recent GCO studies that have appeared since the last significant review published in 2013 through the end of 2019. The authors categorize studies into the three broad areas of GCO: (1) determinants, (2) accuracy and (3) consequences. As an integral part of their synthesis, they summarize the details of each study in several user-friendly tables. After discussing and synthesizing the research, they present a discussion of opportunities for future research, including issues created or exacerbated as a result of the global COVID-19 pandemic. This monograph will be of assistance to researchers interested in exploring this area of auditor responsibility. It will also be of interest to auditing firms and individual practitioners wanting to learn what academic research has examined and found regarding this challenging aspect of audit practice. Auditing standard-setters and regulators will find it of interest as the authors review numerous studies examining issues related to audit policy and regulation, and their effects on GCO decisions. The examination of GCO research is extremely timely given the financial and business disruption caused by the worldwide COVID-19 pandemic. This unprecedented global event has caused companies, auditors and professional bodies to revisit and reassess their approach to going concern, and to think even more deeply about this fundamental business imperative.

Download or read book Taxing Corporate Income in the 21st Century written by Alan J. Auerbach and published by Cambridge University Press. This book was released on 2007-04-16 with total page 401 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book was first published in 2007. Most countries levy taxes on corporations, but the impact - and therefore the wisdom - of such taxes is highly controversial among economists. Does the burden of these taxes fall on wealthy shareowners, or is it passed along to those who work for, or buy the products of, corporations? Can a country with high corporate taxes remain competitive in the global economy? This book features research by leading economists and accountants that sheds light on these and related questions, including how taxes affect corporate dividend policy, stock market value, avoidance, and evasion. The studies promise to inform both future tax policy and regulatory policy, especially in light of the Sarbanes-Oxley Act and other actions by the Securities and Exchange Commission that are having profound effects on the market for tax planning and auditing in the wake of the well-publicized accounting scandals in Enron and WorldCom.