Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/25643
Title: Auditor conservatism, asymmetric monitoring, and earnings management
Authors: Kim, JB
Chung, R
Firth, M
Keywords: Audit effectiveness
Auditor conservatism
Earnings management
Reporting incentives
Issue Date: 2003
Source: Contemporary accounting research, 2003, v. 20, no. 2, p. 323-359 How to cite?
Journal: Contemporary Accounting Research 
Abstract: In this paper, we investigate whether, and how, audit effectiveness differentiation between Big 6 and non-Big 6 auditors is influenced by a conflict or convergence of reporting incentives faced by corporate managers and external auditors. In so doing, we incorporate into our analysis the possibility that managers self-select both external auditors and discretionary accruals, using the two stage "treatment effects" model. Our results show that only when managers have incentives to prefer income-increasing accrual choices are Big 6 auditors more effective than non-Big 6 auditors in deterring/monitoring opportunistic earnings management. Contrary to conventional wisdom, we find Big 6 auditors are less effective than non-Big 6 auditors when both managers and auditors have incentives to prefer income-decreasing accrual choices and thus no conflict of reporting incentives exists between the two parties. The above findings are robust to different proxies for opportunistic earnings management and different proxies for the direction of earnings management incentives.
URI: http://hdl.handle.net/10397/25643
ISSN: 0823-9150
DOI: 10.1506/J29K-MRUA-0APP-YJ6V
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