Management with Working Experience of CPA Firms, Earnings Threshold and Earnings Management
Date Issued
2007
Date
2007
Author(s)
Chang, Chia-Wei
DOI
zh-TW
Abstract
The unprecedented media and regulatory attention on auditor independence issues following the collapse of Enron Corporation has brought the “revolving door” into sharp focus. The Sarbanes-Oxley Act (2002), the Securities and Exchange Commission (SEC, 2000), and the Independence Standards Board (ISB, 1999) suggest that audit quality can be impaired when executives previously worked for their companies’ audit firms.
This study investigates whether the management of companies with working experience of CPA firms engages in earnings management more easily. In addition, this study also examines whether the management has incentives to manipulate earnings to exceed the following three earnings thresholds: report positive profits, sustain recent performance, and meet analysts’ expectations. Using the Modified Jones Model (Dechow, 1995) to calculate discretionary accruals from 2003 to 2005, this study finds that companies employing management with working experience of CPA firms reported larger positive discretionary accruals than other companies, after controlling for other factors that plausibly affect discretionary accruals. In addition, this study also observes that companies just meeting analysts’ earnings forecasts report larger positive discretionary accruals.
Subjects
盈餘管理
盈餘門檻
裁決性應計數
Working experience of CPA firms
Earnings management
Earnings threshold
Discretionary accruals
Type
other
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