Earnings management and the role of auditors in an unusual IFRS context: The case of Greece

Abstract

The mandatory adoption of International Financial Reporting Standards (IFRS) on January 1, 2005 aimed to improve the quality of financial reporting in Greece, which had been regularly criticized for the practice of earnings management and the ineffectiveness of external auditing. However, the unusual characteristics of the economic environment and institutional setting of code-law oriented Greece, has made the attempt even more challenging. To investigate the role of auditors in potentially approving managers' opportunistic behaviour in the post-IFRS period, we examine the relationship between earnings management, measured by signed discretionary accruals, and auditor reporting, measured by audit firm size (Big 4 vs. non-Big 4) and audit opinion type (unqualified vs. qualified). Using a sample of firms listedon the Athens Stock Exchange over a five-year period, we find that the size of the audit firm does not affect the level of earnings management, and the audit opinion qualification is not issued in response to management's opportunistic behaviour. The interpretation of the results is conditional on the Greek context, where the economic bonding of auditors with their clients is strong, investor protection is low, enforcement mechanisms are weak and there is low litigation and reputation loss, even in the post-IFRS period.

Audit opinion and earnings management: Evidence from Greece

“…Competence is the ability of the auditor to detect material error in the financial statements, and independence from the client firm is the willingness of the auditor to take a position that opposes the wishes of the client and report the material error (DeAngelo, 1981). 2 We extend the study of Tsipouridou and Spathis (2012) by reporting an in-depth analysis of the different types of audit opinion qualifications. While they consider an audit opinion dummy variable that takes on the value of 0 for This topic is important because the current economic environment reopens fundamental questions about the role of auditors in maintaining financial statement users' confidence in the audit report.…”

تأثیر جودة المراجعة على جودة الأرباح فی ضوء الخصائص التشغیلیة للشرکة: دراسة تطبیقیة على الشرکات المقیدة بالبورصة المصریة (باللغة الإنجلیزیة)

“…Some evidence from countries, other than US, do not support the hypothesis of positive impact of audit quality on earnings quality (e.g., Park et al 1999, Tsipouridou and Spathis 2012, Siregar et al 2012, Yasar 2013.…”

ESCOLHA DO USO DO VALOR JUSTO PARA PROPRIEDADES PARA INVESTIMENTOS: UMA INFLUÊNCIA DAS CARACTERÍTICAS DE EMPRESAS LISTADAS NA BM&FBOVESPA E NA NYSE

“…-Empresas auditadas pelas maiores empresas de auditoria, denominadas como Big Four (Deloitte, Ernst & Young, KPMG e Pricewaterhouse Coopers) estão menos associadas a práticas de gerenciamento de resultados e costumam agir de forma mais conservadora (Martinez, 2011;Lorencini & Costa, 2012;Tsipouridou & Spathis, 2012).…”