Search results for "accruals"
showing 6 items of 6 documents
Struggle over joint audit: on behalf of public interest?
2012
International audience; European Commission (EC 2011) has recently suggested joint audit - broadly defined as an audit where two independent auditors are jointly liable for the audit report - as a way a way to increase audit quality after the financial crisis and to mitigate audit market concentration, by enlarging the audit offer. Big 4 audit firms have fought this proposal by arguing its unbearable cost while 2nd Tier audit firms have supported it by arguing its added quality. This conflicting position leads us to question their claim of public interest concern. As group-interest economic regulation theories predict that the absence of any effect of a new regulation (here: joint audit) is…
Investor Sentiment and Accruals Anomaly
2017
This paper examines whether investors’ sentiment affectsaccruals anomaly across 15 European countries. In line with recent evidence for the U.S., we find that sentiment causes accruals mispricing across European countries. The effect is pronounced for stocks whose valuations are highly subjective and difficultto arbitrage. Our results also reveal evidence in favor of managers' opportunistic disclosure behavior. The accruals reported are higher in high sentiment periods as compared with low sentiment periods. Our cross-country analysisprovidesevidence that sentiment influences accruals anomaly in countries with weaker outside shareholder rights, lower legal enforcement, lower equity market d…
The value relevance of losses revisited: the importance of earnings aggregation
2011
Accepted version of an article published in the journal: Global Business and Economics Review. Also available from the publisher at: http://dx.doi.org/10.1504/GBER.2011.040728 Prior research has suggested that earnings explain a larger portion of the variation in stock returns when disaggregated into components. This study shows that the increase in explanatory power stems primarily from disaggregation of negative earnings. When accounting earnings are sufficiently disaggregated into items, there is no longer a statistical difference in the value relevance of positive and negative earnings. Thus, negative earnings are also useful to stock investors. The findings are attributed to earnings p…
Busyness of audit committee directors and quality of financial information in India
2016
The audit committees, as a part of the internal corporate governance mechanisms, play an important role to enhance the financial reporting quality. The busyness of audit committee members of a firm in boards and committees of other firms can affect its independent functioning, ceteris paribus. The current study examines, first, the association between multiple directorships of audit committee members and quality of financial reporting in India, second, whether endogenously determined busyness limits of busyness of the audit committee members provide better insights than those exogenously mandated by regulators. The study finds that endogenously determined busyness limits of sub-samples and …
External investigations and disciplinary sanctions against auditors: the impact on audit quality
2015
In this paper, we provide empirical evidence for the impact of disciplinary sanctions imposed on Spanish auditing firms and their engagement partners. The disciplinary sanctions resulted from external investigations, which revealed misapplications of auditing standards. In particular, we evaluate (a) the efficacy of the external supervisory board in identifying low-quality auditors and (b) the effectiveness of the disciplinary system in improving the quality of subsequent statutory audits performed by the sanctioned auditors. We employ two earnings management indicators as proxies for audit quality: loss avoidance through extraordinary items and abnormal accruals. And we compare these measu…
The predictive ability and value relevance of accounting measures
2011
Accepted version of an article published in the journal: International Journal of Economics and Accounting. Also available from the publisher at: http://dx.doi.org/10.1504/IJEA.2011.041894 Empirical accounting research sometimes assumes that the value relevance of accounting variables can be indirectly assessed by studying the ability of the variables to forecast future cash flow and earnings. This study investigates the relationships between short-term cash flow and earnings prediction tests and value relevance analyses. I find that earnings prediction tests might be good substitutes for value relevance analyses, whereas cash flow prediction tests merely provide indications with respect to…