Do audit firm and audit costs/fees influence earnings management in Swedish municipalities?

Donatella, Pierre; Haraldsson, Mattias; Tagesson, Torbjörn

doi:10.1177/0020852317748730

Cited by 31 publications

(40 citation statements)

References 56 publications

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“…Empirical evidence on the relationship between audit fees and earnings management is mixed (Lin and Hwang, 2010). Several studies confirm the first argument regarding the existence of a positive relationship between audit fees and earnings management (Gul et al, 2003;Antle et al, 2006;Choi et al, 2010;Alali, 2011;Sharma et al, 2011;Gu and Hu, 2015;Donatella et al, 2018), whereas other studies support the second argument and document a negative association between them (Frankel et al, 2002;Srinidhi and Gul, 2007). Finally, some studies found that there is no association between audit fees and earnings management (Ashbaugh et al, 2003;Chung and Kallapur, 2003).…”

Section: Audit Fees and Earnings Managementmentioning

confidence: 99%

Does audit quality influence earnings management in emerging markets? Evidence from Jordan

Almarayeh¹,

Guzmán²,

Abdullatif³

2020

RC-SAR

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Este estudio investiga si algunos atributos de la calidad de auditoría son capaces de restringir la manipulación de resultados en un país en desarrollo, Jordania, cuyo contexto cultural, económico e institucional es muy diferente del contexto de los países analizados anteriormente. Se usó la regresión de mínimos cuadrados generalizada (GLS) para estudiar la asociación entre dos atributos de la calidad de auditoría (tamaño del auditor y honorarios de auditoría) y los ajustes por devengos discrecionales, como proxy de la manipulación de resultados, para una muestra de empresas industriales que cotizan en la Bolsa de valores de Amman durante el período 2012 - 2016. Los resultados son consistentes con la expectativa de que en los países emergentes la auditoría externa puede funcionar de manera diferente a la de los países anglosajones y de Europa occidental con respecto a su papel en la restricción de la manipulación de resultados e indican que, dado el entorno institucional en Jordania, el tamaño del auditor y los honorarios de auditoría no tienen un efecto significativo en la manipulación de resultados. Este estudio proporciona a los lectores información sobre si y cómo el entorno institucional influye en la relación entre la calidad de la auditoría y la manipulación de resultados. Además, presenta nueva evidencia sobre el efecto moderador del nivel de los honorarios de auditoría en su relación con la manipulación de resultados. Los resultados de este estudio podrían proporcionar información valiosa a los reguladores, tanto en Jordania como en otros países con un entorno económico e institucional similar, para prevenir las prácticas de manipulación de resultados. This study investigates whether some audit quality attributes are capable to restrict earnings management in a developing country, Jordan, whose cultural, economic and institutional context is very different from most previously analyzed countries’ context. Generalized least square regression (GLS) was used to study the association between two audit quality attributes (auditor size and audit fees) and discretionary accruals, as a proxy of earnings management, for a sample of industrial firms listed on the Amman Stock Exchange during the period 2012 – 2016. The findings are consistent with the expectation that in emerging countries external audit can function differently from that in Anglo-Saxon and West-European countries with regard to its role in restricting earnings management and indicate that, given the institutional environment in Jordan, auditor size and audit fees have no significant effect on earnings management. This study provides readers with information about if and how the institutional setting influences the relationship between audit quality and earnings management. Furthermore, it presents new evidence regarding the moderating effect of the level of audit fees on their relation with earnings management. This study’s findings could provide valuable information to regulators and standards setters, both in Jordan and other countries with a similar economic and institutional environment, which can help in preventing earnings management practices.

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Section: Audit Fees and Earnings Managementmentioning

confidence: 99%

Does audit quality influence earnings management in emerging markets? Evidence from Jordan

Almarayeh¹,

Guzmán²,

Abdullatif³

2020

RC-SAR

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“…In line with previous studies in the Swedish setting, size is measured as the natural logarithm of residents in each municipality (e.g. Collin et al 2017;Donatella et al 2019).…”

Section: Sizementioning

confidence: 99%

CFO characteristics and opportunistic accounting choice in public sector organizations

Donatella

Tagesson

2020

J Manag Gov

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Two different theoretical foundations in the literature relate to the quality of financial reporting in public sector organizations: one theoretical foundation is based on economic theory, and the other is based on institutional theory. In addition to examining the traditional factors derived from these theories, this paper focuses on the role of the chief financial officer (CFO), in order to broaden the theoretical perspective and add explanatory power with regards to the empirical testing of opportunistic accounting choice in public sector organizations. Similar to Anessi-Pessina and Sicilia (J Public Adm Res Theory, 30:465–484, 2019), this paper uses upper echelons theory (Hambrick and Mason in Acad Manage Rev, 9(2):193–206, 1984; Hambrick in Acad Manage Rev, 32(2):334–343, 2007) to conceptually link CFO characteristics with opportunistic accounting choice. The accounting issue addressed herein is related to a statement issued by the standard-setting body within the Swedish municipal sector. Our results suggest that opportunistic accounting choice decreases with CFO tenure and prior CFO experience in municipalities.

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“…While the driving force of municipalities is not profit, but continuity, earnings management is used to present financial results of zero, to indicate the capacity of local politicians to keep the level of costs in line with income (Cohen et al, ; Ferreira, Carvalho, & Pinho, ). Research indicates that the adoption of legal provisions, for instance, IFRS, will not automatically reduce earnings management in the banking industry and the same holds probably true for municipalities (Donatella, Haraldsson, & Tagesson, ; van Oosterbosch, ). Moreover, it can be argued that the implementation of an accrual accounting system provides more possibilities to engage in forms of earnings management, instead to provide a reliable, true, and fair view of the overall financial situation of the accounting entity (Vinnari & Näsi, , p. 112, Cohen et al, ).…”

Section: Further Exploration and Analysismentioning

confidence: 99%

“…Controllers do experience political and managerial pressure to manipulate costs in order to demonstrate that public spending is in line with income and in order to safeguard budgets for spending next year. While earlier studies focused on the valuation of assets and the external accounting function (Donatella et al, ; Reischmann, ; Vinnari & Näsi, ), the object of this study is the imputation of expenses by internal controllers. Moreover, while earlier studies on earnings management focus on electoral motives, the motivation for earnings management could be more bureaucratic.…”

Section: Further Exploration and Analysismentioning

confidence: 99%

An exploratory study assessing compliance among municipal controllers and the possible explanations for their degree of compliance

Anderson¹,

Maks

Klaassen

2019

Journal of Public Affairs

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Municipal controllers are sometimes confronted with requests from managers that contradict with the legal provisions. This raises the question how municipal controllers deal with these requests and whether this would impact their compliance. This article is a result of an exploratory study assessing compliance among municipal controllers and the possible explanations for their degree of compliance. The study has focused on one specific provision concerning accrual accounting, one of the elements of new public management (NPM), which is prescribed for Dutch municipalities. The study is based on a survey in 22 municipalities. The results show that the majority of municipal controllers who participate in this study deviate from this legal provision. There might be a relation between the orientation of the controllers and the degree of compliance. The position of the controller within the municipality can be a significant factor explaining this orientation. However, the size of the sample is too limited to generalize. The conclusions of this study undermine the idea that municipal controllers should act as business partners to the management. Finally, the study reveals a paradox: while one of the main elements of NPM is to shift more responsibilities to decentralized managers, this shift can lead to an increased principal‐agent problem, leading to a lesser degree of compliance.

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Do audit firm and audit costs/fees influence earnings management in Swedish municipalities?

Cited by 31 publications

References 56 publications

Does audit quality influence earnings management in emerging markets? Evidence from Jordan

Does audit quality influence earnings management in emerging markets? Evidence from Jordan

CFO characteristics and opportunistic accounting choice in public sector organizations

An exploratory study assessing compliance among municipal controllers and the possible explanations for their degree of compliance

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