ERP systems have become the system of choice for the majority of publicly traded companies and have radically changed the way accounting information is processed, prepared, audited, and disseminated. In this study, we examine whether ERP system implementations have affected the extent to which firms manage earnings amounts and release dates. We find, for a sample of ERP adopters, that implementations led to increases in the absolute value of discretionary accruals (i.e., greater earnings management). We also find a positive relationship between the extent of ERP module adoption and the extent of earnings management. With respect to earnings release dates, firms with incentives to increase the timeliness of their release dates experienced a decrease in reporting lag after implementing ERP systems. These results should be of interest to financial statement preparers initially adopting or implementing new versions of ERP applications, auditors serving clients with ERP systems, and regulators overseeing the financial markets and consolidation in the ERP industry.
Purpose-The purpose of this paper is to examine the value relevance of accounting information in cases of apparent audit failures. Design/methodology/approach-The authors adopt the bootstrapping technique and compare the value relevance of key accounting information across samples of firms experiencing apparent audit failures with matched non-audit failure firms. Findings-Accounting information is found to be less value relevant for firms experiencing apparent audit failures, regardless of auditor reputation. Research limitations/implications-This study has limitations due to the ex ante research approach adopted. Future research could address this issue by possibly incorporating an "intervening" factor into the model to indicate how the market can differentiate audit failure firms from other firms. Originality/value-The paper gives support to the assertion that the market appears to rely less on accounting numbers when audit failures occur, even though formal allegations of audit failure may not appear until years after their occurrence. In addition to contributing to value-relevance research by providing empirical evidence for the market phenomenon around the time of material misstatements, the paper demonstrates an innovative application of bootstrapping to test for differences in R 2 .
Agency theory suggests that conflict interests between managers and owners cause management shirking and associated agency costs. An audit is a monitoring mechanism that provides an independent check on accounting information and reduces agency costs (Jensen and Meckling, 1976). Therefore, given severe owner-manager agency problems, higher audit quality should be associated with lower client company owner-manager agency costs. The purpose of this study is to empirically test this relation.In China, owner-manager agency problems are severe given extremely low or no management ownership. Moreover, there is a lack of variations in management holdings across Chinese public companies. Such an environment allows us to examine the role of audits in reducing owner-manager agency costs.Using a sample of Chinese listed companies, we find that observations with higher quality audits show lower owner-manger agency costs. Such a result suggests that in an emerging market, higher quality audits more effectively reduce agency costs.
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