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An Empirical Analysis Of Auditor Reporting And Its Association With Abnormal Accruals
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Book Synopsis An Empirical Analysis of Auditor Reporting and Its Association with Abnormal Accruals by : Marty Butler
Download or read book An Empirical Analysis of Auditor Reporting and Its Association with Abnormal Accruals written by Marty Butler and published by . This book was released on 2004 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we introduce a Web-based sampling methodology that we use to obtain and content analyze a large sample of modified audit opinions. Based on this analysis, we re-examine whether certain modified audit opinions are associated with abnormal accruals, as a proxy for earnings management. We find that the documented relation between modified opinions and abnormal accruals rests with companies that have going-concern opinions because such companies have extremely negative accruals. The explanation for these negative accruals is likely severe financial distress since we find that, ceteris paribus, their magnitude is not significantly different from that of a sample of similarly-distressed control firms. Overall, we find no evidence to support inferences in previous research that firms receiving modified audit opinions manage earnings more than those receiving clean audit opinions.
Book Synopsis The Sarbanes Oxley Act, Auditor Independence and Accounting Accruals by : Anwer S. Ahmed
Download or read book The Sarbanes Oxley Act, Auditor Independence and Accounting Accruals written by Anwer S. Ahmed and published by . This book was released on 2006 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence on the relation between office-level client importance and abnormal accruals in a pre-SOX period and a post-SOX period. We find that in the pre-SOX period the relation is not significant for the overall sample. However, it is significantly positive for the sub-sample of firms with relatively weak governance mechanisms. More importantly, we find that for this sub-sample the positive relation between client importance and abnormal accruals remains statistically significant even in the post SOX period. Our results suggest that (i) auditor independence was not widely compromised in pre-SOX periods as presumed by the proponents of SOX, (ii) strong governance mechanisms mitigate the potentially adverse effects of client importance on auditor independence, and (iii) SOX has not been successful in mitigating the adverse effects of client importance on auditor independence for firms with weak governance.
Book Synopsis Auditor Independence, Corporate Governance and Aggressive Financial Reporting by : Ahmed M. Abdel-Meguid
Download or read book Auditor Independence, Corporate Governance and Aggressive Financial Reporting written by Ahmed M. Abdel-Meguid and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper seeks to provide empirical evidence on the efficacy of three important governance mechanisms (auditors, directors, and institutional shareholders) in constraining aggressive financial reporting, proxied by abnormal accruals. It also examines the effects of the Sarbanes-Oxley Act (SOX) on their efficacy. Using a sample of US firms audited by the Big 5 (4) auditors between 2000 and 2004, we document a positive relation between abnormal accruals (our proxy for financial reporting aggressiveness) and auditors' economic dependence on their clients. Furthermore, we find that this relation is driven by firms with weak non-auditor governance mechanisms before and after the enactment of SOX. The results suggest that aggressive financial reporting occurs only when multiple governance mechanisms 'fail'. More specifically, such type of reporting requires that a highly dependent auditor operates in a 'poor' governance setting. Thus, the paper underscores the importance of strong governance in constraining aggressive financial reporting. Moreover, our results suggest that governance regulation (such as SOX) is not a substitute for strong governance mechanisms and thus caution against the over reliance on SOX-type legislation in other parts of the world.
Book Synopsis Integrated Reporting and Audit Quality by : Chiara Demartini
Download or read book Integrated Reporting and Audit Quality written by Chiara Demartini and published by Springer. This book was released on 2017-04-13 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book analyzes the relationship between integrated reporting and audit quality within the European context, presenting empirical evidence and drawing on a broad review of the available literature in order to evaluate the ability of integrated reporting to enhance audit risk assessment. Dedicated sections first elucidate the concepts of integrated reporting and audit quality. The main integrated reporting frameworks are compared, the role of integrated reporting within a firm’s disclosure is examined, and all aspects of audit risk are discussed. The key question of the impacts of integrated reporting on the components of audit risk is then addressed in detail, with reference to empirical findings, their practical implications, and their limitations. The concluding section explores the future of corporate reporting and the development of the next integrated reporting framework and summarizes the insights that the analysis in the book offers into the relationship between integrated reporting and audit quality in the European setting.
Book Synopsis Accounting Accruals and Auditor Reporting Conservatism by : Jere R. Francis
Download or read book Accounting Accruals and Auditor Reporting Conservatism written by Jere R. Francis and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting accruals are managers' subjective estimates of future outcomes and cannot, by definition, be objectively verified by auditors prior to occurrence. This causes audits of high-accrual firms to pose more uncertainty than audits of low-accrual firms because of potential estimation error and a greater chance that high-accrual firms have undetected asset realization and/or going concern problems which are related to the high level of accruals. One way auditors can compensate for this risk exposure is to lower their threshold for issuing modified audit reports, an action which will increase modified reports and therefore lessen the likelihood of failing to issue a modified report when appropriate to do so. We call this auditor reporting conservatism and test if high-accrual firms in the United States are more likely to receive modified audit reports for asset realization uncertainties and going concern problems. Empirical results for a large sample of U.S. publicly-listed companies support that auditors are more conservative, that is, more likely to issue both types of modified audit reports for high-accrual firms. Further analyses show that income-increasing accruals are somewhat more likely to result in reporting conservatism than income-decreasing accruals, and that only the Big 6 group of auditors show evidence of reporting conservatism. These findings add to our understanding of the audit report formation process and the potentially important role played by accounting accruals in that process.
Book Synopsis The Association between Auditor Litigation and Abnormal Accruals by : William G. Heninger
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).
Book Synopsis Auditor Going Concern Reporting by : Marshall A. Geiger
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.
Book Synopsis Do Accounting Accruals Lead to Auditor Reporting Conservatism? by : Jere R. Francis
Download or read book Do Accounting Accruals Lead to Auditor Reporting Conservatism? written by Jere R. Francis and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting accruals are based on subjective estimates and are therefore more uncertain and difficult to audit than many of the components of financial statements. One strategy auditors have to deal with the risk associated with this problem is to lower their threshold for issuing qualified audit reports. We call this auditor reporting conservatism and test if high-accrual firms are more likely to receive a qualified audit report. Empirical results from a large sample of U.S. publicly-listed companies support that auditors are more conservative, that is, more likely to issue qualified audit reports for high-accrual firms. We also find that Big 6 auditors are relatively more conservative than non-Big 6 auditors. These findings (1) add to our understanding of the audit report formation process and the important role played by accounting accruals in that process, and (2) document one reason why Big 6 audits are perceived to be of higher quality.
Book Synopsis An Empirical Analysis of the ED39 Longform Audit Report on Users' Perceptions of the Auditor's Role in Financial Reporting by : Grant E. Gay
Download or read book An Empirical Analysis of the ED39 Longform Audit Report on Users' Perceptions of the Auditor's Role in Financial Reporting written by Grant E. Gay and published by . This book was released on 1992 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Research in Finance by : John W. Kensinger
Download or read book Research in Finance written by John W. Kensinger and published by Emerald Group Publishing. This book was released on 2013-07-10 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt: The theme of Research in Finance vol. 29 is "Dealing with Crisis and Regulation", showcasing an international spread of chapters such as the European financial crisis and the study of audit qualifications for accounting firms in Spain. The international aspect of the volume then shifts to business strategies for competition and finally to regulat
Book Synopsis An Empirical Analysis of the ED39 Longform Audit Report on Users' Perceptions of the Auditors Role in Financial Reporting by : Grant E. Gay
Download or read book An Empirical Analysis of the ED39 Longform Audit Report on Users' Perceptions of the Auditors Role in Financial Reporting written by Grant E. Gay and published by . This book was released on 1992 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Effect of Lame Duck Auditors on Management Discretion by : Cory A. Cassell
Download or read book The Effect of Lame Duck Auditors on Management Discretion written by Cory A. Cassell and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We identify instances in which the auditor-client relationship has been terminated but the auditor continues to complete a subsequent quarterly review. We refer to these instances as “lame duck auditor” quarters, and we contrast financial reporting quality in these quarters with that in non-lame duck auditor quarters. Using discretionary accruals and financial statement misstatements as proxies for financial reporting quality, we find that financial reporting quality is higher in lame duck auditor situations, suggesting that lame duck auditors perform more stringent quarterly reviews. We attribute these results to improvements in auditor independence and/or heighted reputation concerns. We perform a number of tests to alleviate concerns that our results are attributable to fundamental differences between clients with lame duck auditors and clients with non-lame duck auditors and to alleviate concerns that our results are attributable to changes in manager behavior rather than changes in auditor behavior. Collectively, our results provide insights that are relevant to regulators, auditors, and other stakeholders who are interested in the factors that affect auditor independence and financial reporting quality.
Book Synopsis Proceedings of the 4th International Conference on Research in Management and Technovation by : Thi Hong Nga Nguyen
Download or read book Proceedings of the 4th International Conference on Research in Management and Technovation written by Thi Hong Nga Nguyen and published by Springer Nature. This book was released on with total page 655 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Coopers & Lybrand SEC Manual by : Robert H. Herz
Download or read book The Coopers & Lybrand SEC Manual written by Robert H. Herz and published by Wiley. This book was released on 1997-07-15 with total page 1344 pages. Available in PDF, EPUB and Kindle. Book excerpt: The most authoritative source available on SEC rules and regulations In this comprehensive manual, SEC staff members and specialists from Coopers & Lybrand L.L.P. with extensive experience in dealing with registrant issues provide interpretive guidance on the latest SEC regulations. They review the formal and informal requirements that are often encountered in SEC practice and recommend approaches for compliance. The Coopers & Lybrand SEC Manual, Seventh Edition provides a general understanding of SEC accounting practices, enables users to identify more easily the official sources of SEC rules and regulations, and addresses all of the most frequently asked questions. This fully updated Seventh Edition contains several new and important features, including a section on EDGAR; an expanded section on business combinations, including poolings of interests; and guidance on the financial statement requirements for acquired companies. Other highlights include: Organization of the SEC The role of the accountant in the registration process Small-business issues rules Preparation guidelines for most frequently used registration forms Coverage of the most significant accounting issues affecting registrants Foreign registrant reporting requirements For CFOs, controllers, CPAs, investment bankers, securities analysts, and attorneys, The Coopers & Lybrand SEC Manual, Seventh Edition provides effective, hands-on guidance and interpretation.
Book Synopsis Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs by : Lauren C. Reid
Download or read book Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs written by Lauren C. Reid and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: While substantial revisions to auditor reporting requirements are being implemented internationally, the impact of these reforms on financial reporting quality is unknown. We exploit the United Kingdom's recent auditor reporting changes and find that the U.K.'s new reporting regime is associated with an improvement in financial reporting quality as proxied by significant decreases in absolute abnormal accruals and the propensity to just meet or beat analyst forecasts, and a significant increase in earnings response coefficients. As for audit costs, we do not find a significant change in audit fees or audit delay surrounding the implementation of the new reporting regime. Taken together, the results of this study suggest that new auditor reporting requirements are associated with a significant improvement in financial reporting quality without detecting a significant increase in audit costs.
Book Synopsis From Joint to Single Audits - Audit Quality Differences and Auditor Pairings by : Claus Holm
Download or read book From Joint to Single Audits - Audit Quality Differences and Auditor Pairings written by Claus Holm and published by . This book was released on 2017 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study analyses audit quality differences between audits by a single big audit firm and joint audits with either one or two big audit firms. We exploit the unique situation in Denmark beginning on 1 January 2005, at which time a long-standing mandatory joint audit system for listed companies was replaced by a voluntary joint audit system. First, we report the results of a survey of Danish CFOs' views on and their experiences with the choice of single or joint audits and their perceptions of audit quality. Second, based on data from the mandatory joint audit abolition year and the following two years, we test the audit quality differences using abnormal accruals. Most CFOs perceive that audit quality by a single big four audit firm is the same as it is in joint audits with either one or two big four audit firms. The results of our empirical analysis are in line with the perceptions. We find no evidence of audit quality differences between audits made by a single big four firm and those conducted by either of the two combinations of joint audits.
Book Synopsis Essays Examining the Association Between Going Concern Audit Opinions, Subsequent Earnings Management and Engagement Office Audit and Reporting Quality by : Marcus R. Brooks
Download or read book Essays Examining the Association Between Going Concern Audit Opinions, Subsequent Earnings Management and Engagement Office Audit and Reporting Quality written by Marcus R. Brooks and published by . This book was released on 2014 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays that examine the association between going concern audit opinions, subsequent earnings management and engagement office audit and reporting quality. Essay I (Chapter 1) examines the earnings management behavior of financially distressed firms following the receipt of a going concern opinion. The results indicate that financially distressed firms, unable to improve their financial condition through the manipulation of accounting accruals, report large magnitudes of negative discretionary and working capital accruals. As a result, these firms turn their attention to the manipulation of real operational activities. By engaging in various forms of real activity manipulation, financially distressed firms are able to reduce reported expenses, conserve cash, and most importantly, avoid bankruptcy and/or the receipt of a subsequent going concern opinion, despite being in financial distress. Essay II (Chapter 2) investigates whether audit quality and reporting accuracy is associated with engagement office propensity to issue going concern opinions. The findings from this study show clients of engagement offices with a high propensity to issue going concern audit opinions are associated with large magnitudes of income decreasing discretionary accruals, suggesting that these engagement offices require their clients to report more conservatively. The findings also show that these engagement offices' financial statement conservatism carries over to their financial reporting decision-making. The conservative reporting posture of these engagement offices leads them to issue going concern audit opinions to subsequently viable clients, leading to higher type I error rates. Overall, this dissertation contributes to the accounting literature addressing going concern audit reporting by creating two new variables that help to explain the association between the receipt of a prior going concern audit opinion and subsequent earnings management, and the association between engagement office propensity to issue going concern audit opinions and audit and reporting quality. The variables created could open a new stream of literature aimed at addressing earnings management behavior and choices following the receipt of a going concern opinion and also demonstrate that more attention should be directed to the characteristics of individual engagement offices because they are the ultimate determining factor of an audit firm's overall audit and reporting quality. Together, the studies show how important it is to analyze the effects of going concern audit reports and how they are associated with seemingly unrelated topics in accounting literature.
