Previous studies (Carslaw, 1988;Thomas, 1989;Niskanen & Keloharju, 2000) have shown that companies' managers tend to round-up the ®rst digits of reported earnings (i.e. for companies reporting pro®ts). According to Carslaw (1988), this type of behaviour is inspired by the existence of the so-called`$1Á99' phenomenon where a price of $1Á99 is perceived as being abnormally lower than one of $2Á00. In the current study, we try to determine whether managers of UK-listed companies also engage in this type of`earnings rounding-up behaviour'. Analogous to the earlier studies, our study compares observed and expected frequencies for the second-from-the-left digit in reported earnings. Our results suggest that managers of UK-listed companies tend to round-up reported pre-tax income, in a way that increases the ®rst digit by one, when they are faced with a nine in the second-from-the-left position for this particular earnings measure. The major contribution of the current study is that it introduces discretionary accruals in this line of research. Discretionary accruals were estimated using both the Jones model (1991) and the modi®ed Jones model as proposed by Dechow et al. (1995). Our results clearly suggest that discretionary accruals are used in order to round-up reported earnings ®gures. Moreover, discretionary accruals enabled us to increase the power of the tests used in previous studies.
This article examines financial statement filing lags among a sample of Belgian small firms. Our results indicate that around one-third of small firm financial statements are filed late (after the legal deadline), but that monetary sanctions could be an effective tool to encourage compliance with legal deadlines. Whereas the deadline and late filing sanctions are filing incentives, various factors, such as firm size and presence of an external financial statement audit, also affect financial statement filing lags. Evidence indicated that extremely late filings were associated with lower financial statement quality.
Previous studies (see, for example, Carslaw, 1988; Thomas, 1989; Niskanen and Keloharju, 2000; Kinnunen and Koskela, 2002; Van Caneghem, 2002) clearly suggest that public companies' managers tend to round up the first digit of reported earnings (i.e. for companies reporting profits). Based on a sample of listed UK companies and employing earnings rounding-up behaviour (henceforth ERUB) as an indication of earnings management, I attempt to determine the impact of differences in audit quality on earnings management. When I rely on the very popular brand-name proxy (i.e. BigFive versus non-BigFive auditors) to capture differences in audit quality, findings are inconsistent with BigFive auditors constraining earnings management practices (i.e. findings suggest ERUB for both BigFive and non-BigFive clients). Employing an alternative proxy (i.e. based on auditors' industry expertise), findings are only weakly consistent with specialist BigFive auditors constraining earnings management (i.e. ERUB) practices.
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