Work

The Role of Big 6 Auditors in the Credible Reporting of Accruals

Year: 1999

Type: article

Abstract: This study investigates if the use of a Big 6 auditor is increasing in the firm's endogenous propensity to generate accruals. High-accrual firms have greater scope for aggressive and/or opportunistic earnings management and therefore have an incentive to hire a Big 6 auditor to provide assurance that reported earnings are credible. For a large sample of NASDAQ firms over the period 1975–1994 we find that the likelihood of using a Big 6 auditor is increasing in firms' endogenous propensity for accruals. Even though Big-6-audited firms have higher levels of total accruals, we also find they have lower amounts of estimated discretionary accruals. This finding is consistent with Big 6 auditors constraining aggressive and potentially opportunistic reporting of accruals.

Source: Auditing A Journal of Practice & Theory

DOI: 10.2308/aud.1999.18.2.17

Authors: Jere R. Francis, Edward L. Maydew, H. Charles Sparks

Institutions: University of Missouri, University of North Carolina at Chapel Hill, University of Alaska Fairbanks

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2012041776

FWCI: 61.6

Cites: 36

Cited by: 1,409

Related to: 10