An Empirical Analysis of Auditor Reporting and Its Association with Abnormal Accruals
Andrew J. Leone
University of Miami
University of Connecticut - Department of Accounting
June 9, 2003
Simon Business School Working Paper No. FR 02-06
In this paper, we use a Web-based sampling methodology to obtain and content analyze a large sample of modified audit opinions. Based on this analysis, we re-examine whether certain modified audit opinions are associated with abnormal accruals, as a proxy for earnings management. We find that the documented relation between modified opinions and abnormal accruals rests with companies that have going-concern opinions because such companies have extremely negative accruals. The explanation for these negative accruals is likely severe financial distress since we find that, ceteris paribus, their magnitude is not significantly different from that of a sample of similarly-distressed control firms. Overall, we find no evidence to support inferences in previous research that firms receiving modified audit opinions management earnings more than those receiving clean audit opinions.
Number of Pages in PDF File: 38
Keywords: Abnormal Accruals, Audit Firms, Audit Opinions, Earnings Management
JEL Classification: M41, M43, M49, D21, C81working papers series
Date posted: February 1, 2002
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