Auditor Reputation and Earnings Management: International Evidence from the Banking Industry

• Main Authors: Kiridaran, Kanagaretnam, LIM, Chee Yeow, Lobo, Gerald J.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2010
• Subjects: Auditor reputation; Auditor expertise; Earnings management; Earnings benchmarks; Loan loss provisions; Accounting; Business Law, Public Responsibility, and Ethics; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/3; https://ink.library.smu.edu.sg/context/soa_research/article/1002/viewcontent/Auditor_Reputation_2010_sv.pdf
• Institution: Singapore Management University

We examine the relation between auditor reputation and earnings management in banks using a sample of banks from 29 countries. In particular, we examine the implications of two aspects of auditor reputation, auditor type and auditor industry specialization, for earnings management in banks. We find that both auditor type and auditor industry specialization moderate benchmark-beating (loss-avoidance and just-meeting-or-beating prior year’s earnings) behavior in banks. In addition, we find that once auditor type and auditor industry specialization are included in the same tests, only auditor industry specialization has a significant impact on constraining benchmark-beating behavior. In separate tests related to income-increasing abnormal loan loss provisions, we find that both auditor type and auditor expertise constrain income-increasing earnings management. Again, in joint tests, only auditor industry expertise has a significant impact on constraining income-increasing earnings management.