The Impact of the Asian Financial Crisis on Auditors' Conservatism

Abstract

We examine differences in conservatism between companies audited by Big 4 and non-Big 4 auditors during the financial crisis and post-crisis periods in Thailand. The results indicate a significant increase in conservatism following the Asian financial crisis. Moreover, Big 4 audit clients were more sensitive to bad news than non-Big 4 audit clients, particularly during the crisis period. In the post-crisis period, both Big 4 and non-Big 4 audit clients reported more conservative earnings. Interestingly, we found no significant difference in conservatism between Big 4 and non-Big 4 auditors in the post-crisis period, possibly due to the conscientious adoption of International Accounting Standards, more stringent control by regulatory bodies, and improvements in corporate governance in Thailand.

Changes in chaebol firms’ overinvestment after the Asian financial crisis: a long-term perspective

“…Herrmann, Pornupatham, and Vichitsarawong (2008) find that Thai firms generally reported more aggressively during the Asian financial crisis and more conservatively in the period following the financial crisis. Morris, Pham, and Gray (2011) demonstrate improvements in Malaysian firms' financial reporting transparency and corporate governance systems since the financial crisis.…”

Do audit opinions reflect earnings persistence?

“…When legal environments are not effective, auditors are expected to play a substitute governance role (Fan and Wong, 2005). Thailand introduced important changes after the financial crisis in 1997 such as the adoption of international financial reporting standards (IFRS), more strict regulation of listed companies and an improvement in corporate governance (Herrmann et al, 2008). Recently, the Securities and Exchange Commission (SEC) has actively monitored auditors of listed companies and increased the degree of punishment for breach of rules and standards by auditors.…”

Client Importance and Auditor Independence: The Effect of the Asian Financial Crisis

“…The government of Thailand launched rather significant reforms and introduced new rules to punish auditors who indulged in irresponsible behaviour after the crisis. As a result, financial accounting quality improved after the crisis (Herrman et al 2008; Vichitsarawong et al 2010), confirming that post‐crisis institutional improvements in Asia increased financial reporting quality.…”