Do Individual Auditors Affect Clients’ Real Activities Manipulation? Evidence of Learning and Auditor Quality

55 Pages Posted: 22 Apr 2014

See all articles by Baolei Qi

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Yi SI

City University of Hong Kong; Xi'an Jiaotong University (XJTU) - School of Management

Gaoliang Tian

Xi'an Jiaotong University (XJTU)

Martin G. H. Wu

University of Illinois at Urbana-Champaign

Date Written: April 21, 2014

Abstract

We find empirical evidence that clients’ real activities manipulation (RAM) varies across individual auditors. More specifically, both audit-firm and individual-auditor fixed effects on RAM are significant; yet only the latter remain significant in regressions including auditors’ propensity to issue qualified audit opinions as an explanatory variable. This incremental effect of individual auditors on RAM is beyond what is proxied by qualified audit opinions. We also find that auditors’ personal demographics have limited power in explaining RAM’s variation. Taken together, these findings suggest that audit quality take root in individual auditors, who influence clients’ economic decisions, not just accounting policy choices.

Keywords: Auditor identity disclosure; partner rotation; auditor quality; qualified audit opinion; and real activities manipulation

JEL Classification: M49

Suggested Citation

Qi, Baolei and SI, Yi and SI, Yi and Tian, Gaoliang and Wu, Martin G. H., Do Individual Auditors Affect Clients’ Real Activities Manipulation? Evidence of Learning and Auditor Quality (April 21, 2014). Available at SSRN: https://ssrn.com/abstract=2427341 or http://dx.doi.org/10.2139/ssrn.2427341

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Yi SI

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China
+852-66438716 (Phone)

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Gaoliang Tian

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Martin G. H. Wu (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 333-5957 (Phone)
(217) 244-0902 (Fax)

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