Explore the association between non-audit services and earnings management and the association between firms characteristics and accounting quality

liu, hang (2012) Explore the association between non-audit services and earnings management and the association between firms characteristics and accounting quality. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

ABSTRACT

The primary objective of this dissertation is to explore the association between auditor-client economic bonding, client importance in terms of fees, especially those from non-audit services, and earnings management and the association between firms characteristics and accounting quality. The idea is that the provision of NAS may impair auditor independence and hence increase managers’ incentives to manipulate earnings and resulting lower accounting quality.

In this dissertation, earnings management is measured using the absolute value of abnormal accruals as estimated by the performance matched discretionary accruals (Kothari et al. 2005) model. Firstly, it examines the association between auditor-client economic bonding and earnings management. Secondly, it examines the association between client importance and earnings management for firms partitioned into three groups by leverage. Lastly, it examines the association between firms’ characteristics and accounting quality. There are eighteen hypotheses are derived from six models to investigate these associations. These models are tested using a sample drawn from FTSE 350 Index for the period from 2006 to 2011.

The results reveal that audit-client economic bonding positively and significantly associates with earnings management when the economic bonding measured as the ratio of non-audit services fees to total audit fees (audit plus non-audit fees), and another measurement, the natural logarithm of non-audit services fees, has a negative but insignificant relationship with earnings management. In addition, the results present that client importance has a relationship between earnings management when only these clients are partitioned into low and middle leverage groups. Finally, using two interrelated interaction variables as proxies for accounting quality to examine the last hypothesized associations and results present firm size, leverage and complexity have significant associations with accounting quality. The primary contribution of this dissertation is its extension of the investigation on the effects of non-audit services on earnings management and the proposed two proxies for accounting quality can be used in further research.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 08 Apr 2013 11:26
Last Modified: 23 Oct 2016 03:21
URI: http://eprints.nottingham.ac.uk/id/eprint/25607

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