Search results for "Earnings management"
showing 10 items of 20 documents
Bank Loan Loss Accounting and Its Contracting Effects: The New Expected Loss Models
2019
As a result of the recent financial crisis, several key institutions urged the IASB and the FASB to re-evaluate their models for loan loss accounting and use more forward-looking information. The paper examines the principal features of the new expected loss approach, taking into account the tensions between accounting and prudential objectives with respect to credit losses. We discuss the rationales for the change introduced by IFRS 9 and explore the differences between the IASB and the FASB models. Based on the notions of accounting conservatism and earnings management, we discuss the potential consequences of the new models. While both the FASB and the IASB model are more conservative th…
The Impact of Board Internationalization on Earnings Management
2016
Prior literature shows that choices regarding board composition are associated with earnings management. We add to this literature by examining the effects of the presence of a foreign board member on earnings management. Using a sample of 3,249 firm-year observations representing 586 non-financial listed Nordic firms during 2001-2008, we find that the presence of a non-Nordic, foreign director is associated with significantly higher levels of earnings management. Moreover, we provide preliminary evidence that differences in accounting knowledge drive this effect. Our results suggest that it may not necessarily be beneficial to appoint a foreign director to the board.
Audit and Earnings Management in Spanish SMEs
2016
Abstract Evidence about the relation between earnings management and voluntary audits is scarce, and there is no research about the effectiveness of mandatory audits to improve earnings quality. Using a sample of Spanish SMEs, where some companies are mandatorily audited and some are exempt from audit, we examine if audits, either mandatory or voluntary, help to improve accounting quality by constraining earnings management. We also examine differences between voluntary and mandatory audits, as well as the role of Big 4 and Middle-Tier auditors. After controlling for other characteristics that affect earnings management, we find that audited companies have lower absolute discretionary accru…
Bank Loan Loss Accounting: Research Implications for the Post-Crisis Debate
2016
The IASB and the FASB have recently re-evaluated the current model underlying loan loss accounting (the ‘incurred loss’). Taking into consideration the G20‘s advice on using more forward-looking information, they introduce a new approach (the ‘expected loss’ model). This paper reviews the academic literature to shed some light on the new expected loss models when applied to the financial industry. The accounting literature discussed in this study outlines both general theoretical findings and empirical evidence that help to infer the potential impact of the new models. Given the link between loan loss impairment and accounting conservatism as well as earnings management, we explore these co…
Comment renforcer la règlementation sur l'indépendance des auditeurs ? Quelques leçons tirées du marché français
2010
This paper draws on the growing academic literature, over the last decade, to assess the effects of the French regulation aimed at promoting external auditor independence. For listed companies, the joint-audit requirement results in a less concentrated audit market: Big 4 auditors have a weaker market share as compared with other markets. But audit fees are not lower, however. This could be explained by (1) coordination costs between joint-auditors that outweigh the benefits of a more “open” market, and/or (2) the impossibility to switch auditor during a six-year legal engagement. Elsewhere, the a priori stronger independence associated with that specific regulation does not result in less …
La réglementation de l'audit est-elle dans l'intérêt public : quelques enseignements du modèle français
2010
This paper draws on the growing academic literature, over the last decade, to assess the effects of the French regulation aimed at promoting external auditor independence. For listed companies, the joint-audit requirement results in a less concentrated audit market: Big 4 auditors have a weaker market share as compared with other markets. But audit fees are not lower, however. This could be explained by (1) coordination costs between joint-auditors that outweigh the benefits of a more “open” market, and/or (2) the impossibility to switch auditor during a six-year legal engagement. Elsewhere, the a priori stronger independence associated with that specific regulation does not result in less …
Nonaudit services provided by incumbent auditors and earnings management: Evidence of auditor independence from an EU country
2011
ABSTRACTThis paper examines whether the joint provision of audit and non-audit services undermines auditor independence by testing for an association between the provision of consulting services and auditor independence measured by discretionary accruals. For the most part, previous literature has studied the issue in countries with an Anglo-American business environment. This study analyzes the possible impairment of auditor independence in the context of a continental European Union country (Spain). A cross-sectional regression is estimated to test the relationship between non-audit fees and reporting quality. Based on publicly available information for Spanish listed companies, the evide…
The monitoring role of female directors over accounting quality
2017
Recent research in accounting suggests female directors exert more stringent monitoring over the financial reporting process than their male counterparts. However, an emerging literature in finance and economics provides mixed findings and questions whether females in leadership roles significantly differ from their male counterparts. Building on this literature, we re-examine the link between the presence of female directors, gender biases, and financial statements quality. Using a large sample of UK firms we find that a larger percentage of women among independent directors is significantly associated with lower earnings management practices. However, we show that this relation disappears…
Audit fees and earnings management: differences based on the type of audit
2020
In spite of the extensive research about the impact of audit fees on audit quality, there is no research examining if the association between voluntary audits and audit pricing affects audit quality. Therefore, the aim of this paper is to empirically examine whether the effect of audit fees on audit quality, measured by the level of earnings management, is affected by the type of audit (voluntary vs mandatory), as well as whether the effect of audit fees on audit quality is different depending on the type of audit. Using a sample of Spanish SMEs composed of both voluntarily and mandatorily audited companies, we find that voluntary audits have higher quality when audit fees are lower, but th…
Determinants of Chairman Compensation
2011
This study examines determinants of chairman compensation in a supervisory board setting and, specifically, the relationship between chairman and CEO compensation. Using a sample of publicly listed firms in Sweden, the study indicates that chairman compensation – despite its fixed nature – is reflective of firm performance via a positive relationship to CEO compensation. As CEO compensation is set before chairman compensation, we argue that the chairman may be inclined to conspire with the CEO in earnings management efforts at the expense of monitoring on behalf of investors. Supporting our argument, we find evidence that the gap between chairman and CEO compensation is less at firms where …