Abstract

http://ssrn.com/abstract=297825
 
 

References (26)



 
 

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Auditor Conservatism and Audit Quality: Evidence from IPO Earnings Forecasts


Philip J. Lee


University of Sydney

Sarah J. Taylor


University of Melbourne - Faculty of Business and Economics

Stephen L. Taylor


University of New South Wales (UNSW) - School of Accounting

January 2002


Abstract:     
We examine the relation between the accuracy and bias of earnings forecasts provided in Australian initial public offering (IPO) prospectuses and a proxy for differential audit quality. For the period we examine, most Australian IPO prospectuses include an earnings forecast, with which the auditor must be satisfied prior to signing off on the prospectus. Our evidence suggests that forecasts associated with Big 6 auditors are more accurate than those for which a Non-Big 6 auditor is used, although this result is not robust across alternative measures of forecast accuracy. We also find significantly less optimistic bias for forecasts associated with Big 6 auditors, but this result is robust to alternative measures of forecast bias. Although the distribution of forecast errors is strongly suggestive of earnings management to avoid reporting earnings below the forecast figure, the distribution of forecast errors for Non-Big 6 clients indicates a substantially greater proportion of large, optimistic forecast errors than for Big 6 clients. This supports our conclusion that Big 6 auditors are more conservative than their Non-Big 6 counterparts.

Number of Pages in PDF File: 35

Keywords: Audit quality; Initial public offering; Management earnings forecasts

JEL Classification: G32, G12, G29, M41, M43, M49

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Date posted: January 28, 2002  

Suggested Citation

Lee, Philip J. and Taylor, Sarah J. and Taylor, Stephen L., Auditor Conservatism and Audit Quality: Evidence from IPO Earnings Forecasts (January 2002). Available at SSRN: http://ssrn.com/abstract=297825 or http://dx.doi.org/10.2139/ssrn.297825

Contact Information

Philip John Lee
University of Sydney ( email )
Discipline of Accounting
Faculty of Economics and Business (H69)
Sydney NSW 2006
Australia
+61 2 9351 3067 (Phone)
+61 2 9351 6638 (Fax)
HOME PAGE: http://www.econ.usyd.edu.au/staff/philipl
Sarah J. Taylor (Contact Author)
University of Melbourne - Faculty of Business and Economics ( email )
Victoria, 3010
Australia
+61383443414 (Phone)
+61393492397 (Fax)
Stephen L. Taylor
University of New South Wales (UNSW) - School of Accounting ( email )
Sydney, NSW 2052
Australia
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