The Influence of Audit Opinion on the Degree of Real Earnings Management. The Case of Romanian Listed Companies

Abstract

The quality of financial information is a decisive landmark in the decision-making process of all users. This is why meeting the quality criteria should be a desideratum for all the stakeholders involved in the development and verifying of financial reports. In this context, this paper aims to analyze the influence exercised by the audit opinion on the quality of the financial information reported by Romanian companies listed on the regulated market of the Bucharest Stock Exchange. Quality is assessed in terms of the degree of manipulation of operational activities (intervention in the conduct of commercial transactions and controlling the cost of the goods sold via overproduction, respectively). The analyzed data cover a time frame of 6 financial years (2012)(2013)(2014)(2015)(2016)(2017), and the dependency relations are also tested by introducing control variables such as: company size, indebtedness, profitability and reputation of the auditor. The results obtained highlight the contribution of the audit opinion to boosting the quality of financial information, measured based on the degree of manipulation of sales (under the aspect of value and the time when the transactions were made). In case of manipulation via overproduction, the audit opinion does not exercise significant influences, reflecting possible limitations of the audit endeavor in terms of its capacity to identify corrupt activities associated with production. The auditor's reputation does not have a significant impact on the manipulation of sales, only in overproduction case this characteristic having a positive role.

Influential Factors Affecting Earnings Management in Public Listed Companies: A Conceptual Model

“…The amount to which financial statement users may trust audit judgments is determined by the quality of the audit undertaken, which is critical to capital market stability. Carp and Georgescu (2019) emphasize the importance of audit opinions in improving the quality of financial data, as evaluated by the degree of sales manipulation (under the aspect of value and the time when the transactions were made).…”

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“…Cordoş & Fülöp (2013) conclude that for the 25 most important capitalisations of the Bucharest Stock Exchange, the auditor rotation has rather negative effects, in terms of independence. The role of the financial audit in mitigating the effects of the real and accrual earnings management is analysed by Carp & Georgescu (2019).…”

“…BVB, rotaţia auditorului are efecte mai degrabă negative în ceea ce priveşte independenţa. Rolul auditului financiar în atenuarea efectelor manipulării rezultatelor şi a angajamentelor este analizat deCarp & Georgescu (2019). am descris structura populaţiei analizate, pe ani şi pe categorii de auditori.În rapoartele de audit analizate am identificat mai multe variabile: Toate datele au fost colectate manual din rapoartele anuale individuale ale companiilor listate din România (există foarte puţine companii care consolidează); aceste rapoarte sunt disponibile, în general, pe site-ul BVB, dar am completat căutarea pe site-urile companiilor, acolo unde a fost cazul.…”