Auditor awareness of earnings management

Abstract

This study examines whether auditor reporting in Greece is associated with different levels of discretionary accruals -a common proxy for earnings management. We focus our research on 91 cases of quoted companies on the Athens Stock Exchange (ASE). These are listed companies that were asked in year 2003 by the Athens Stock Exchange Board to quantify the effects of the qualifications made by their external auditors and post them in the ASE website. Those auditors' reports were referred to published financial statements of the year 2002. By employing some variations of the traditional Jones-discretionary accrual model, we document that several major Greek companies in financial distress with qualified audit opinions do appear to manipulate their reported earnings by exploiting the weaknesses of the Greek GAAP.

Αναβαλλόμενη Φορολογία Και Οι Επιπτώσεις Στις Χρηματοοικονομικές Καταστάσεις

“…However the sign of the variable (Aud_RepUnQ) suggests that issuing a "qualified report" is positively related to the recognition of DTA_TLC. The result moves on the same line with previous findings indicating that a "qualified report" is positively associated with the level of discretionary accruals (Francis & Krishnan, 1999;Koumanakos, Georgopoulos, & Siriopoulos, 2008).…”

“…Ζ επφκελε κεηαβιεηή (Aud_RepUnQ) ειέγρεη πηζαλή ζεκαληηθφηεηα αλάκεζα ζηηο αθξαίεο ηηκέο κε ηελ απφδνζε ζηελ γλψκε "unqualified" ηεο ηηκήο 1 θαη ζηελ "qualified", ηηκή 0. Μηα κεξίδα εξεπλψλ εθπξνζσπεί ηελ άπνςε φηη έλα "qualified report" ζρεηίδεηαη ζεηηθά κε ην χςνο ησλ κε θαλνληθψλ δεδνπιεπκέλσλ -discretionary accruals- (Francis & Krishnan, 1999;Koumanakos, Georgopoulos, & Siriopoulos, 2008).…”

Audit Firms, Deferred Taxation and Financial Reporting

“…The assessment of an enterprise's going concern is demonstrably one of the hardest items of external audit, as well as expressing an audit opinion in the inspection certificate. As regards the type of opinions expressed in the Reports of External Auditors (International Standards on Auditing), a survey portion represents the view that an audit report of the type "qualified opinion" is positively correlated with the level of discretionary accruals (Francis and Krishnan, 1999;Koumanakos, Georgopoulos and Siriopoulos, 2008). A contrary view is expressed by Bradshaw, Richardson and Sloan (1999).…”

Deferred Tax Positions under the Prism of Financial Crisis and the Effects of a Corporate Tax Reform

“…Aud_Rep is included to control differences between Audit Opinions. A stream of research favours the view that "qualified reports" are positively related to the level of discretionary accruals (Francis & Krishnan, 1999;Koumanakos, Georgopoulos, & Siriopoulos, 2008),while the opposite is supported by another (Bradshaw, Richardson, & Sloan,1999). Butler, Leone, and Willenborg (2004) find no evidence suggesting that firms receiving qualified audit opinions manage earnings more than those receiving unqualified opinions.…”