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| Author: | Krishnan, G. V. |
| Title: | Audit Quality and the Pricing of Discretionary Accruals |
| Journal: | Auditing: A Journal of Practice and Theory
2003 : MAR, VOL. 22:1, p. 109-126 |
| Index terms: | AUDITING EARNINGS MANAGEMENT VALUATION CAPITAL MARKETS |
| Language: | eng |
| Abstract: | Accrual-based earnings is considered superior to cash flows. Accruals allow managers to communicate their private and inside information and thereby improve the ability of earnings to reflect underlying economic value. However, managers could engage in aggressive reporting of accruals that would seriously undermine the informative-ness of reported earnings. Since outsiders cannot directly observe earnings, high-accrual firms face greater agency costs relative to low-accrual firms. Auditing plays an important role in mitigating these agency costs by constraining opportunistic management of accruals. This study examines whether there is a linkage between audit quality and pricing of discretionary accruals. |
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