Auditor Conservatism, Abnormal Accruals, and Going Concern Opinions

Katsuhiko Muramiya and Tomomi Takada
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Tomomi Takada: Graduate School of Business Administration, Kobe University

No 2010-64, Discussion Papers from Kobe University, Graduate School of Business Administration

Abstract: We investigate the Japanese Big 4 auditors' conservatism. Recent increasing litigation risks and scrutiny from the public are likely to make the Japanese Big 4 auditors conservative. Our results indicate that the Big 4 are effective in deterring income-decreasing earnings management by clients. Their motive for doing so may be to avoid scrutiny by the authorities, since financial and tax accounting are strongly aligned in Japan. Furthermore, we show that among firms receiving going concern opinions, those audited by the Big 4 report less negative abnormal accruals than those audited by non-Big 4 This implies that they provoke accrual reversals to the firms whose financial condition is less distressed, when they issue going concern opinions.

Keywords: Auditor conservatism; Auditor size; Earnings management; Going concern opinion; Litigation risk (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-12
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Citations: View citations in EconPapers (2)

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