Auditors as monitors: evidence from discretionary accruals of Laventhol and Horwath clients

Brad J. Reed, Linda M. Lovata, Michael L. Costigan and Alan K. Ortegren

Review of Accounting and Finance, 2007, vol. 6, issue 4, 391-403

Abstract: Purpose - This paper aims to provide evidence on the hypothesis that auditors differ in how they constrain discretionary accruals (DAs) of their clients. The paper seeks to analyze changes in DAs for clients of Laventhol and Horwath associated with the appointment of a successor auditor. Design/methodology/approach - The study uses regression and archival data to separate a firm's accounting accruals into discretionary and non‐DAs. The study then examines changes in a firm's DAs associated with a change in auditors. Findings - Replacing LH with a new auditor resulted in a statistically significant decrease in DAs. This result is contrary to prior research and could be due to the prior research using voluntary auditor changes where variables such as financial distress and opinion shopping could drive the results. Originality/value - The study provides results that differ from prior research. This study shows that the auditor change is associated with a systematic decline in the level of a firm's DAs. The results could be due to the forced nature of this auditor change as opposed to voluntary auditor changes used in prior research.

Keywords: Auditors; Financial management; Bankruptcy (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:v:6:y:2007:i:4:p:391-403

DOI: 10.1108/14757700710835050

Access Statistics for this article

Review of Accounting and Finance is currently edited by Nawazish Mirza

More articles in Review of Accounting and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().