Article ID Journal Published Year Pages File Type
5087104 Journal of Accounting and Economics 2008 23 Pages PDF
Abstract

We test the effect of audit effort on earnings management using a unique database of hours worked by auditors on 9,738 audits in Greece between 1994 and 2002. When audit hours are lower, (1) abnormal accruals are more often positive than negative, (2) positive abnormal accruals are larger, and (3) companies are more likely to manage earnings upwards in order to meet or beat the zero earnings benchmark. These results persist after we control for endogeneity between audit hours and earnings management. We conclude that low audit effort increases the extent to which managers are able to report aggressively high earnings.

Related Topics
Social Sciences and Humanities Business, Management and Accounting Accounting
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