The Relation between Audit Quality and Core Earnings Restatement
Date Issued
2012
Date
2012
Author(s)
Sung, Chia-Ling
Abstract
There are information asymmetry between investors and enterprises, because investors can’t observe enterprises’ operation. With financial statements, investors can understand the operation of enterprises and reduce the degrees of information asymmetry. The core earnings in the financial statements stand for the main operation activities in enterprises. For investors, core earnings are important information to evaluate firms’ operation and investment activities. If there are core earnings restatements, it indicates that investors may be misled by the information reported in the financial statements. For accountants, core earnings are the key part of the auditors’ work. If accountants can’t detect the misstatements in core earnings, the financial statements users may have significant doubt about auditors’ quality.
The purpose of this study is to investigate the relation between audit quality and core earnings restatements, and further examine whether firms with more competent and independent auditors are more likely to be associated with lower core earnings restatements.
The empirical results indicate that firms with high quality auditors are associated with lower possibility of core earnings restatements and thus have higher quality financial reporting.
Subjects
audit quality
auditors
competence
independence
core earnings
Type
thesis
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