Auditor independece, auditor specialisation and earnings management: Further evidence from Singapore

International Journal of Accounting, Auditing and Performance Evaluation

Volumn 3, Issue 2, 2006, Pages 166-193

  Rusmin, ^a   Van der Zahn, J L W Mitchell ^a,b   Tower, Greg ^a   Brown, Alistair M ^a  

^a CURTIN UNIVERSITY   (Australia)

^b SINGAPORE MANAGEMENT UNIVERSITY   (Singapore)

Author keywords

Abnormal accruals; Auditor independence; Auditor specialisation; Singapore

Indexed keywords

EID: 33747345697     PISSN: 17408008     EISSN: 17408016     Source Type: Journal    
DOI: 10.1504/IJAAPE.2006.010300     Document Type: Article

References (90)

1. Abbott, L.J., Parker, S., Peters, G. and Raghunandan, K. (2003) 'An empirical investigation of audit fees, nonaudit fees and audit committees', Contemporary Accounting Research, Vol. 20, No. 2, pp.215-234.
2. Antle, R., Gordon, E., Narayanmoorthy, G. and Zhou, L. (2002) The Joint Determination of Audit Fees, Non-audit Fees and Abnormal Accruals, Unpublished Working Paper, Yale University, New York, United States of America.
3. Ashbaugh, H., LaFond, R. and Mayhew, B.W. (2003) 'Do non-audit services compromise auditor independence?: further evidence', The Accounting Review, Vol. 78, No. 3, pp.611-639.
4. Balsam, S., Krishnan, J. and Yang, Y.S. (2003) 'Auditor industry specialization and the earnings response coefficient', Auditing: A Journal of Practice and Theory, Vol. 22, No. 2, pp.71-97.
5. Beasley, M.S. and Petroni, K. (2001) 'Board independence and audit firm type', Auditing: A Journal of Practice and Theory, Vol. 20, March, pp.97-114.
6. Beck, P.J., Frecka, T.J. and Solomon, I. (1988) 'An empirical analysis of the relationship between MAS involvement and auditor tenure: implications for auditor independence', Journal of Accounting Literature, Vol. 7, No. 1, pp.65-84.
7. Becker, C.L., DeFond, M.L., Jiambalvo, J. and Subramanyam, K.R. (1998) 'The effect of audit quality on earnings management', Contemporary Accounting Research, Vol. 15, pp.1-24.
8. Beeler, J.D. and Hunter, J.E. (2001) Contingent Economic Rents: Precursors to Predecisional Distortion of Client Information, Unpublished Working Paper, University of South Carolina, United States of America.
9. Bernard, V.L. and Skinner, D.J. (1996) 'What motivates managers' choice of discretionary accruals?', Journal of Accounting and Economics, Vol. 22, August-December, pp.313-326.
10. Bhattacharya, U., Daouk, H. and Welker, M. (2003) 'The world price of earnings opacity', The Accounting Review, Vol. 78, No. 3, pp.641-678.
11. Casterella, J.R., Francis, J., Lewis, B.L. and Walker, P.L. (2004) 'Auditor industry specialization, client bargaining power and audit pricing', Auditing: A Journal of Practice and Theog, Vol. 23, No. 1, pp.123-140.
12. Chan, H.K. (2005) Singapore's Political Economy: A Case Study of Social Costs in a Market Economy, Universal Books, Melbourne, Australia.
13. Christie, A.A. and Zimmerman, J.L. (1994) 'Efficient and opportunistic choices of accounting procedures: corporate control contests', The Accounting Review, Vol. 69, No. 4, pp.539-566.
14. Chung, H. and Kallapur, S. (2003) 'Client importance, non-audit services and abnormal accruals', The Accounting Review, Vol. 78, No. 4, pp.931-955.
15. Corporate Governance Committee (2001) Report of the Committee and Code of Corporate Governance, Corporate Governance Committee, Singapore.
16. Craswell, A. and Taylor, S.L. (1991) 'The market structure of auditing in Australia: the role of industry specialisation', Research in Accounting Regulation, Vol. 5, No. 1, pp.55-77.
17. Craswell, A., Francis, J. and Taylor, S. (1995) 'Auditor brand, name reputations and industry specializations', Journal of Accounting and Economics, Vol. 20, No. 2, pp.297-322.
18. Danos, P. and Eichenseher, JW. (1982) 'Audit industry dynamics: factors affecting changes in client-industry market shares', Journal of Accounting Research, Vol. 20, No. 2, pp.604-616.
19. DeAngelo, L. (1981) 'Auditor size and audit quality', Journal of Accounting and Economics, Vol. 3, No. 1, pp.183-199.
20. Dechow, P.M. (1994) 'Accounting earnings and cash flows as measures of firm performance: the role of accounting accruals', Journal of Accounting and Economics, Vol. 18, No. 1, pp. 3-42.
21. Dechow, P.M., Richardson, S.A. and Tuna, I.A. (2002) Are Small Profit Firms Boosting Accruals to Avoid Losses and are they Different from Small Loss Firms, Unpublished Working Paper, University of Michigan, Michigan, United States of America.
22. Dechow, P.M., Sloan, R.G. and Sweeney, A.P. (1995) 'Detecting earnings management', The Accounting Review, Vol. 70, No. 2, pp.193-226.
23. DeFond, M.L. and Jiambalvo, J. (1994) 'Debt covenant violation and manipulation of accruals', Journal of Accounting and Economics, Vol. 17, pp.145-176.
24. DeFond, M.L. and Park, C.W. (1997) 'Smoothing income in anticipation of future earnings', Journal of Accounting and Economics, Vol. 23, pp.115-139.
25. DeFond, M.L., Francis, J. and Wong, T.J. (2000) 'Auditor industry specialization and market segmentation: evidence from Hong Kong', Auditing: A Journal of Practice and Theory, Vol. 19, No. 1, pp.49-66.
26. DeFond, M.L., Raghunandan, K. and Subramanyam, K.R. (2002) Do Nonaudit Service Fees Impair Auditor Independence? Evidence from Going Concern Opinions, Unpublished Working Paper, University of Southern California, United States of America.
27. Dopuch, N. and Simunic, D. (1982) 'Competition in auditing: an assessment', Fourth Symposium on Auditing Research, University of Illinois, Champaign-Urbuma, Illinois, United States of America.
28. Earnscliffe Research and Communications (1999) Report to the USA Independence Standards Board; Research of Auditor Independence and Objectivity, Earnscliffe Research and Communications, New York, United States of America.
29. Economic Development Board (2002) Heart Work, Economic Development Board, Singapore, Singapore.
30. Eng, L.L. and Mak, Y.T. (2003) 'Corporate governance and voluntary disclosure', Journal of Accounting and Public Policy, Vol. 22, No. 4, pp.325-345.
31. Ferguson, A. and Stokes, D. (2002) 'Brand name, audit pricing, industry specialization and leadership premiums post-Big 8 and Big 6 mergers', Contemporary Accounting Research, Vol. 19, No. 1, pp.77-110.
32. Ferguson, A., Francis, J. and Stokes, D. (2003) 'The effects of firm-wide and office-level industry expertise on audit pricing', The Accounting Review, Vol. 78, No. 4, pp.429-448.
33. Financial Sector Review Group (1998a) Report on Banking Disclosure, Financial Sector Review Group, Singapore.
34. Financial Sector Review Group (1998b) Report on Corporate Finance Committee, Financial Sector Review Group, Singapore.
35. Firth, M. (1997) 'The provision of non-audit services by accounting firms to their audit clients', Contemporary Accounting Research, Vol. 14, No. 1, pp.1-21.
36. Firth, M. and Liau-Tan, C. (1998) 'Auditor quality, signalling and the valuation of initial price offerings', Journal of Business, Finance and Accounting, Vol. 25, pp.145-165.
37. Frankel, R., Johnson, M. and Nelson, K. (2002) 'The relation between auditors' fees for non-audit services and earnings management', The Accounting Review, Vol. 77, Supplement, pp.71-105.
38. Gay, G.E. and Simnett, R. (2003) Auditing and Assurance Services in Australia, 2nd ed., McGraw-Hill, Sydney, New South Wales, Australia.
39. Gill, G.S., Cosserat, G., Leung, P.L. and Coram, P. (1999) Auditing, 5th ed., John Wiley & Sons Australia Limited, Sydney, New South Wales, Australia.
40. Glezan, G.W. and Millar, J.A. (1985) 'An empirical investigation of stockbroker reaction to disclosures required by ASR No.250', Journal of Accounting Research, Vol. 23, No. 4, pp.859-870.
41. Gore, P., Pope, P.F. and Singh, A. (2001) Nonaudit Services, Auditor Independence and Earnings Management, Unpublished Working Paper, Lancaster University, Lancaster, United Kingdom.
42. Greene, W. (1999) Econometric Analysis, 4th ed., Prentice-Hall, New York, United States of America.
43. Guay, W.R., Kothari, S.P. and Watts, R.L. (1996) 'A market-based evaluation of discretionary accrual models', Journal of Accounting Research, Vol. 34, pp.83-105.
44. Gul, F.A. (2001) 'Free cash flow, debt-monitoring and managers' LIFO/ FIFO policy choice', Journal of Corporate Finance, Vol. 7, No. 4, pp.475-492.
45. Gul, F.A., Chen, C.J.P. and Tsui, J.S.L. (2003) 'Discretionary accounting accruals, managers' incentives and audit fees', Contemporary Accounting Research, Vol. 20, No. 3, pp.441-464.
46. Hair, J.F. Anderson, R.E., Tatham, R.L. and Black, W.C. (1995) Multivariate Data Analysis 4th Edition, Prentice-Hall, Englewood Cliffs, New Jersey, United States of America.
47. Healy, P.M. and Palepu, K.G. (2001) 'Information asymmetry, corporate disclosure and the capital markets: a review of the empirical disclosure literature', Journal of Accounting and Economics, Vol. 31, Nos. 1-3, pp.405-440.
48. Heninger, W. (2001) 'The association between auditor litigation and abnormal accruals', The Accounting Review, Vol. 76, No. 1, pp.111-126.
49. Hirst, D.E. (1994) 'Auditor sensitivity to earnings management', Contemporary Accounting Research, Vol. 11, No. 4, pp.405-422.
50. Hogan, C. and Jeter, D. (1999) 'Industry specialization by auditors', Auditing: A Journal of Practice and Theory, Vol. 18, No. 1, pp.1-17.
51. International Institute of Management Development (2003) The World Competitiveness Yearbook, International Institute of Management Development, Lausanne, Switzerland.
52. Jensen, M. and Meckling, W. (1976) 'Theory of the firm: managerial behaviour, costs and ownership structure', Journal of Financial Economics, Vol. 3, pp.305-360.
53. Jones, J.J. (1991) 'Earnings management during import relief investigations', Journal of Accounting Research, Vol. 29, No. 2, pp.193-228.
54. Kim, J.B., Chung, R. and Firth, M. (2003) 'Auditor conservatism, asymmetric monitoring and earnings management', Contemporary Accounting Research, Vol. 20, No. 2, pp.323-359.
55. Klein, A. (2002) 'Audit committee, board of director characteristics, and earnings management', Journal of Accounting and Economics, Vol. 33, pp.375-400.
56. Kothari, S.P., Leone, A.J. and Wasley, C.E. (2002) Performance Matched Discretionary Accrual Measures, Unpublished Working Paper, University of Rochester, Chicago, Illinois, United States of America.
57. Krishnan, G.V. (2003) 'Does Big 6 auditor industry expertise constrain earnings management?', Accounting Horizons, Vol. 19, Supplement, pp.1-16.
58. Kwon, S.Y. (1996) 'The impact of competition within the client's industry on the auditor selection decision', Auditing: A Journal of Practice and Theory, Vol. 15, No. 1, pp.53-70.
59. La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (1998) 'Law and finance', Journal of Political Economy, Vol. 106, No. 6, pp.1113-1155.
60. La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. (1997) 'Legal determinants of external finance', The Journal of Finance, Vol. 52, No. 3, pp.1131-1150.
61. Lee, K.Y. (2000) From Third World to First: The Singapore Story 1965-2000, Times Media Private Limited, Singapore.
62. Leisman, S., Weil, J. and Schroder, M. (2002) 'Dirty books? Accounting debacles spark calls for change: here's the rundown', Wall Street Journal, Vol. 239, No. 26, February 6, p.A1.
63. Leuz, C., Nanda, D. and Wysocki, P.D. (2003) 'Earnings management and investor protection: an international comparison', Journal of Financial Economics, Vol. 69, No. 3, pp.505-527.
64. Levitt, A. (1998) The Numbers Game (Remarks delivered at the NYU Center for Law and Business), NYU Center for Law and Business, New York, United States of America.
65. Levitt, A. (2000) Renewing the Covenant with Investors (Comments delivered at NYU Center of Law and Business), NYU Center for Law and Business, New York, United States of America.
66. Lys, T. and Watts, R.L. (1994) 'Lawsuits against auditors', Journal Accounting Research, Vol. 32, No. 1, pp.65-93.
67. MacDonald, E. (2001) 'Was that auditor's opinion really independent?', Forbes, 3/19/01, Vol. 167, No. 7, pp.109-111.
68. Mak, Y.T. and Li, Y. (2001) 'Determinants of corporate ownership and board structure: evidence from Singapore', Journal of Corporate Finance, Vol. 7, No. 3, pp.235-256.
69. Mak, Y.T. and Phan, P.H. (2001) 'Corporate governance in Singapore: current practice and future developments. In organization for economic co-operation and development (OCED)', Corporate Governance in Asia: A Comparative Perspective, Organization for Economic Co-operation and Development, Geneva, Switzerland, pp.373-405.
70. Mayhew, B.W. and Wilkins, M.S. (2003) 'Audit firm industry specialization as a differentiation strategy: evidence from fees charged to firms going public', Auditing: A Journal of Practice and Theory, Vol. 22, No. 2, pp.33-52.
71. Milken Institute (2004) Capital Access Index 2004, Milken Institute, Washington DC, United States of America.
72. Myers, J., Myers, L.A. and Omer, T. (2003) 'Exploring the term of the auditor-client relationship and the quality of earnings: a case for mandatory auditor rotation?', The Accounting Review, Vol. 77, Supplement, pp.175-202.
73. Pearson, T. and Trompeter, G. (1994) 'Competition in the market for audit services: the effect of supplier concentration on audit fees', Contemporary Accounting Research, Vol. 11, No. 1, pp.115-135.
74. Peasnell, K.V., Pope, P.F. and Young, S. (2000) 'Accrual management to meet earnings targets: UK evidence pre- and post-Cadbury', The British Accounting Review, Vol. 32, No. 4, pp.415-445.
75. Phan, P.H. and Mak, Y.T. (1999a) 'Corporate governance in Singapore: towards the 21st Century', Bankers Journal Malaysia, Vol. 109, March, pp.56-70.
76. Phan, P.H. and Mak, Y.T. (1999b) 'An exploratory study of corporate governance in Singapore', Malaysian Journal of Economic Studies, Vol. 35, Nos. 1-2, pp.199-230.
77. Press, E.G. and Weintrop, J.B. (1990) 'Accounting-based constraints in public and private debt agreements', Journal of Accounting and Economics, Vol. 12, Nos. 1-3, pp.65-95.
78. Reynolds, J. and Francis, J. (2001) 'Does size matter? The influence of large clients on office-level auditor reporting decision', Journal of Accounting and Economics, Vol. 30, No. 3, pp.375-400.
79. Reynolds, J., Deis, D.R. and Francis, J.R. (2004) 'Professional service fees and auditor objectivity', Auditing: A Journal of Practice and Theory, Vol. 23, No. 1, pp.29-52.
80. Scheiner, J.H. (1984) 'The impact of SEC nonaudit service disclosure requirements on independent auditors and their clients: an empirical investigation', Journal Accounting Research, Vol. 22, No. 4, pp.789-797.
81. Shleifer, A. and Vishny, R.W. (1986) 'Large shareholders and corporate control', Journal of Political Economy, Vol. 95, No. 3, pp.461-488.
82. Simunic, D. (1984) 'Auditing, consulting and auditor independence', Journal of Accounting Research, Vol. 22, No. 4, pp.679-702.
83. Skinner, D.J. and Sloan, R.G. (2002) 'Earnings surprises, growth expectations, and stock returns or don't let an earnings torpedo sink your portfolio', Review of Accounting Studies, Vol. 7, Nos. 2-3, pp.289-312.
84. Solomon, I., Shields, M. and Whittington, O.R. (1999) 'What do industry-specialist auditors know', Journal of Accounting Research, Vol. 38, No. 1, pp.191-208.
85. Sweeney, A.P. (1994) 'Debt-covenant violations and managers' accounting responses', Journal of Accounting and Economics, Vol. 17, No. 3, pp.281-308.
86. Watkins, A.L., Hillison, W. and Morecroft, S.E. (2004) 'Audit quality: a synthesis of theory and empirical evidence', Journal of Accounting Literature, Vol. 23, No. 1, pp.153-193.
87. Watts, R.L. and Zimmerman, J.L. (1986) Positive Accounting Theory, Prentice-Hall, New York, United States of America.
88. Whisenant, S., Sankaraguruswamy, S. and Raghunandan, K. (2003) 'Evidence of the joint determination of audit and non-audit fees', Journal of Accounting Research, Vol. 41, No. 4, pp.721-744.
89. Yardley, J., Kauffman, N., Cairney, T. and Albrecht, D. (1992) 'Supplier behavior in the USA audit market', Journal of Accounting Literature, Vol. 11, No. 2, pp.151-184.
90. Zhou, J. and Elder, R. (2002) Audit Firm Size, Industry Specialization and Earnings Management by IPO Firms, Unpublished Working Paper, Binghampton University and Syracuse University, United Kingdom.