Audit Qualifications of Income†Decreasing Accounting Choices*

Frank D. Hodge, Roger D. Martin and Jamie H. Pratt

Contemporary Accounting Research, 2006, vol. 23, issue 2, 369-394

Abstract: In this study we conduct an experiment to examine how qualifying an income†decreasing accounting change in years of strong financial performance affects financial report users' assessments of strategic reporting, current financial performance, and future financial performance (performance over the next three years). We find that without the qualification, users viewed the income†decreasing accounting change as relatively nonstrategic and that user assessments of current and future performance were not different. In the presence of the qualification, users believed that the accounting change was relatively strategic, and they discounted the income effect of the accounting change. We find further that their assessments of future performance were below their assessments of current performance but no different from the assessments of future performance in the absence of the qualification. Although our findings suggest that audit qualifications encourage users to be skeptical of income†decreasing accounting changes, we find no evidence that they impose negative consequences on management in terms of lower assessments of financial performance.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1506/0L0U-C5V6-3FTM-5DTJ

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:wly:coacre:v:23:y:2006:i:2:p:369-394

Access Statistics for this article

More articles in Contemporary Accounting Research from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().