Auditor Conservatism, Asymmetric Monitoring, and Earnings Management

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)62_Review of books or of software (or similar publications/items)peer-review

257 Scopus Citations
View graph of relations

Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)323-359
Journal / PublicationContemporary Accounting Research
Volume20
Issue number2
Publication statusPublished - Jun 2003
Externally publishedYes

Abstract

In this paper, we investigate whether, and how, audit effectiveness differentiation between Big 6 and non-Big 6 auditors is influenced by a conflict or convergence of reporting incentives faced by corporate managers and external auditors. In so doing, we incorporate into our analysis the possibility that managers self-select both external auditors and discretionary accruals, using the two stage "treatment effects" model. Our results show that only when managers have incentives to prefer income-increasing accrual choices are Big 6 auditors more effective than non-Big 6 auditors in deterring/monitoring opportunistic earnings management. Contrary to conventional wisdom, we find Big 6 auditors are less effective than non-Big 6 auditors when both managers and auditors have incentives to prefer income-decreasing accrual choices and thus no conflict of reporting incentives exists between the two parties. The above findings are robust to different proxies for opportunistic earnings management and different proxies for the direction of earnings management incentives.

Research Area(s)

  • Audit effectiveness, Auditor conservatism, Earnings management, Reporting incentives

Citation Format(s)

Auditor Conservatism, Asymmetric Monitoring, and Earnings Management. / Kim, Jeong-Bon; Chung, Richard; Firth, Michael.

In: Contemporary Accounting Research, Vol. 20, No. 2, 06.2003, p. 323-359.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)62_Review of books or of software (or similar publications/items)peer-review