The Relationship of Discretionary Accruals Causing the Difference Between Self-reported and Audited Earnings

• Main Authors: Yun-Ping Hsu, 許韻萍
• Other Authors: Hung-Shu Fan
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/78842704701285353233

碩士 === 輔仁大學 === 會計學系碩士班 === 94 === As commonly observed, there often are gap between self-reported earnings and audited earnings for listed companies (hereafter, AUEE) in Taiwan. This study is aimed to explore what causes this gap. Is it the result of earnings management by the managers (earnings management hypothesis)? Or does it reflect the outcome of the audit quality (audit quality hypothesis)? This study uses discretionary accruals (hereafter, DA) to proxy firm’s earnings management behavior and tests these two alternative hypotheses. The earnings management hypothesis predicts positive relationship between AUEE and DA, but the audit quality hypothesis predicts negative relationship. To examine which hypothesis can explain AUEE, this study adopts 6 DA derived from Jones Model and Modified Jones Model to proxy the firm’s earnings management behavior: Jones model(DA1), Modified Jones model(DA2), ROA regression-control Jones model(DA3), ROA regression-control Modified Jones model(DA4), ROA match-control Jones model(DA5), ROA match-control Modified Jones model(DA6). Furthermore, this study use audit quality, good or bad news, shareholding of board directors, the risk degree of account code, capital structure, as well as earning report days to control other possible effects on AUEE. The research samples are taken from those Taiwanese public-listed companies who released financial forecasts and self-reported earnings during 2000 and 2004. And the major findings of this research are as follows: 1. In all AUEE sample: In model DA1 to DA4, DA shows significant negative correlation with AUEE, which supports the audit quality hypothesis. That represents that the more AUEE, the better audit quality, and the lower earnings management. 2. In positive AUEE sample: In model DA1 to DA3, shows significant negative correlation with AUEE, which supports the audit quality hypothesis again. 3. In positive AUEE sample: All of the six models DA1 to DA6 show no significant correlation between DA and AUEE which don’t supports any hypothesis.