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| Author: | Ajona, L. A. Dallo, F. L. Alegria, S. S. |
| Title: | Discretionary accruals and auditor behaviour in code-law contexts: an application to failing Spanish firms |
| Journal: | European Accounting Review
2008 : DEC, VOL. 17:4 p. 641-666 |
| Index terms: | auditors risk management accounting standards Spain USA auditing |
| Language: | eng |
| Abstract: | This paper examines the relationship between earnings management and auditor behaviour in the pre-bankrupt client segment of the Spanish audit market. The study uses type of audit firm (Big N/non-Big N) and type of audit report as proxies for auditor behaviour. Spanish audit reports, in contrast to USA, often include modifications other than a going-concern opinion. The study shows that discretionary accruals are negatively related to going-concern opinions but positively related to reports modified for reasons other than going-concern problems. However, the negative relationship is explained by auditor conservatism. This conservatism is found in the value of discretionary accruals and in the qualifications accompanying a going concern. Finally, results suggest that Big N differentiation in a code-law country is context-specific and depends on the business risk parameter of the 'audit risk model'. In particular, for high-risk firms, Big N auditors show a significantly lower level of discretionary accruals and a greater propensity to issue a going-concern opinion. |
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