- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
We examine the relation between audit quality and the earnings management activities of IPO firms. The impact of high quality auditors on real earnings management has been researched in a number of settings e.g. SEOs. However, to date, there has been no work on the effect of high quality auditors on real activities-based manipulation around IPOs. We examine UK IPOs between 1998 and 2008 and find evidence that high quality auditors constrain the use of real activities manipulation that occurs via the management of discretionary expenses. We also find evidence, consistent with prior research, that high quality auditors constrain the manipulation of discretionary accruals. Crucially, we find IPO firms audited by high quality auditors undertake sales-based manipulation in order to manage earnings upward at the end of the IPO year. The presence of high quality auditors is not, therefore, sufficient to constrain all forms of earnings management.
We examine the impact of audit quality on real and accrual earnings management around IPOs. Although prior research has examined accruals earnings management around IPOs (e.g., Friedlan, 1994; Gramlich and Sorensen, 2004; Morsfield and Tan, 2006; Teoh et al. 1998a), and a small number of recent papers have started to investigate real earnings management activities and IPOs (e.g., Darrough & Rangan, 2005; Wongsunwai, 2013), our paper progresses the literature by examining the effect of enhanced audit quality on real and accrual earnings management activities during the IPO year. We contribute to the research in this area by showing IPO firms audited by high quality auditors resort to a higher level of salesbased manipulation but have significantly lower levels of discretionary expenses-based and accrual-based manipulations.
While this finding can only lead to a partial acceptance of our hypothesis, our results are consistent with the approach for detecting real earnings management via the use of ratios, trends, financial and non-financial information, set out in the International Standards on Auditing. The presence of high quality auditors does not constrain sales manipulation. However, discretionary expense manipulation is significantly lower, as a divergent trend between increasing sales and the costs associated with increasing sales would be a signal to high-quality auditors that there may be pervasive manipulation going on. The mere presence of a big-N auditor is not, however, sufficient to constrain all forms of earnings management.