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Do audit firm and audit costs/fees influence earnings management in Swedish municipalities?

Donatella, Pierre; Haraldsson, Mattias LU and Tagesson, Torbjörn LU (2018) In International Review of Administrative Sciences
Abstract
Previous research on the private sector shows that auditors and auditing firms are important actors in ensuring high-quality reporting based on accrual accounting. The aim of this study is to explore whether audit firms and audit costs/fees influence municipalities’ probability of applying earnings management in their annual accounts. The empirical data, which covered the financial years 2011–13, were handpicked from annual reports or retrieved from other sources. In general, our study shows that the probability of earnings management increased if audit costs/fees increased. However, there were differences regarding the probability of earnings management relating to which audit firm was engaged. This implies that audit quality is a factor... (More)
Previous research on the private sector shows that auditors and auditing firms are important actors in ensuring high-quality reporting based on accrual accounting. The aim of this study is to explore whether audit firms and audit costs/fees influence municipalities’ probability of applying earnings management in their annual accounts. The empirical data, which covered the financial years 2011–13, were handpicked from annual reports or retrieved from other sources. In general, our study shows that the probability of earnings management increased if audit costs/fees increased. However, there were differences regarding the probability of earnings management relating to which audit firm was engaged. This implies that audit quality is a factor that affects the probability of earnings management in Swedish municipalities. The study also indicates that different audit firms make different trade-offs between professional versus commercial logics, and that this is reflected in the clients’ propensity to engage in earnings management. (Less)
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organization
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Contribution to journal
publication status
epub
subject
in
International Review of Administrative Sciences
publisher
SAGE Publications Inc.
external identifiers
  • scopus:85045042272
ISSN
1461-7226
DOI
language
English
LU publication?
yes
id
8b26d528-640c-48f0-9d4c-d9698b6d8613
date added to LUP
2017-12-21 13:36:56
date last changed
2018-05-29 11:00:09
@article{8b26d528-640c-48f0-9d4c-d9698b6d8613,
  abstract     = {Previous research on the private sector shows that auditors and auditing firms are important actors in ensuring high-quality reporting based on accrual accounting. The aim of this study is to explore whether audit firms and audit costs/fees influence municipalities’ probability of applying earnings management in their annual accounts. The empirical data, which covered the financial years 2011–13, were handpicked from annual reports or retrieved from other sources. In general, our study shows that the probability of earnings management increased if audit costs/fees increased. However, there were differences regarding the probability of earnings management relating to which audit firm was engaged. This implies that audit quality is a factor that affects the probability of earnings management in Swedish municipalities. The study also indicates that different audit firms make different trade-offs between professional versus commercial logics, and that this is reflected in the clients’ propensity to engage in earnings management.},
  author       = {Donatella, Pierre and Haraldsson, Mattias and Tagesson, Torbjörn},
  issn         = {1461-7226},
  language     = {eng},
  month        = {04},
  publisher    = {SAGE Publications Inc.},
  series       = {International Review of Administrative Sciences},
  title        = {Do audit firm and audit costs/fees influence earnings management in Swedish municipalities?},
  url          = {http://dx.doi.org/},
  year         = {2018},
}