دانلود رایگان مقاله انگلیسی مدیریت واقعی درآمد در تصمیمات مربوط به هزینه حسابرسی - تیلور و فرانسیس 2016

ABSTRACT

This study investigates whether auditors incorporate the implications of potential litigation risk arising from their client firms’ using real earnings management (REM) to manage earnings. Using a large sample of US firms, we find that REM is positively related to audit fees and that this relation is incremental over and beyond the effects of accrual-based earnings management and other control variables. We also find that the positive relation between REM and audit fees is stronger for firms with sophisticated investors or higher stock price sensitivity to accounting earnings. Finally, we find that this positive relation is more pronounced for firms with financial constraints where REM is more likely to stem from managerial opportunism and is perceived as riskier by auditors. These findings are robust to endogeneity controls and various sensitivity tests.

6. Concluding remarks

Although high-quality audits can deter AEM, the auditors’ role with respect to REM is not clear up to now. This study investigates how auditors consider the level of REM activities of client firms in their audit fee decisions.

We find that REM is positively related to audit fees and that this relation is incremental over and beyond the effects of AEM and other audit fee determinants. This finding suggests that auditors demand a fee premium to self-protect against the increased litigation risk due to their client firms’ REM. We also find that the positive relation between audit fees and REM is more pronounced for the firms with higher ERC, more sophisticated investors, and higher financial constraints.

Subject to some caveats discussed previously, the findings in this study provide important implications for managers, auditors, regulators, and researchers. First, recent survey evidence shows that managers are willing to use REM to manipulate reported earnings even though REM activities have adverse consequences on long-term firm value. Our evidence indicates that the use of REM could be costly to a firm because the firm’s auditors see through its consequences on cash flows and shareholder litigations and are, thus, able to factor this increased risk into higher audit fees. Second, the results suggest that academic researchers interested in audit fee determinants should consider not only AEM but also REM as an important factor affecting audit risk. Given that little is known about what firmlevel and/or institution-level factors influence managers’ abilities, incentives, and opportunities to engage in costly REM (relative to AEM) as an earnings management strategy, we recommend further research on the issue.