The association of preaudit engagement risk with discretionary accruals

Journal of Accounting, Auditing and Finance

Volumn 22, Issue 4, 2007, Pages 623-644

  Manry, David L ^a   Mock, Theodore J ^b   Turner, Jerry L ^c  

^a UNIVERSITY OF NEW ORLEANS   (United States)

^b UNIVERSITY OF SOUTHERN CALIFORNIA   (United States)

^c UNIVERSITY OF MEMPHIS   (United States)

Author keywords

Discretionary accruals; Engagement risk; Litigation risk

Indexed keywords

EID: 35948999657     PISSN: 0148558X     EISSN: None     Source Type: Journal    
DOI: 10.1177/0148558X0702200407     Document Type: Article

References (59)

1. American Institute of Certified Public Accountants (AICPA). 1983. Audit Risk and Materiality in Conducting an Audit. Statement on Auditing Standards No. 47. New York, NY: AICPA.
2. American Institute of Certified Public Accountants (AICPA). 1997. Consideration of Fraud in a Financial Statement Audit. Statement on Auditing Standards No. 82. New York, NY: AICPA.
3. American Institute of Certified Public Accountants (AICPA). 2002. Consideration of Fraud in a Financial Statement Audit. Statement on Auditing Standards No. 99. New York, NY: AICPA.
4. Ashbaugh, H., R. LaFond, and B. Mayhew. 2003. "Do Nonaudit Services Compromise Auditor Inde-pendence? Further Evidence." The Accounting Review 78 (3): 611-639.
5. Bartov, E., F. Gul, and J. Tsui. 2000. "Discretionary-Accruals Models and Audit Qualifications." Journal of Accounting and Economics 30: 421-452.
6. Beasley, M., J. Carcello, and D. Hermanson. 1999. Fraudulent Financial Reporting: 1987-1997. Committee of Sponsoring Organizations.
7. Becker, C., M. DeFond, J. Jiambalvo, and K. Subramanyam. (1998. "The Effect of Audit Quality on Earnings Management." Contemporary Accounting Research 15 (1): 1-24.
8. Bedard, J., and K. Johnstone. 2004. "Earnings Manipulation Risk, Corporate Governance Risk, And Auditors' Planning And Pricing Decisions." The Accounting Review 79 (2): 277-304.
9. Bell, T., W. Landsman, and D. Shackelford. 2001. "Auditors' Perceived Business Risk and Audit Fees: Analysis and Evidence." Journal of Accounting Research 39 (1): 35-43.
10. SM: "A Computerized Decision Aid for Client Acceptance and Continuance Risk Assessments." Auditing: A Journal of Practice and Theory 21 (2): 97-113.
11. Bowen, R., D. Burgstahler, and L. Daley. 1986. "Evidence on the Relationships Between Earnings and Various Measures of Cash How." The Accounting Review (October): 713-725.
12. Butler, M., A. Leone, and M. Willenborg. 2004. "An Empirical Analysis of Auditor Reporting and Its Association With Abnormal Accruals." Journal of Accounting and Economics 37: 139-165.
13. Chung, H., and S. Kallapur. 2003. "Client Importance, Nonaudit Services, and Abnormal Accruals." The Accounting Review 78 (4): 931-935.
14. DeAngelo, H., L. DeAngelo, and D. Skinner. 1994. "Accounting Choice in Troubled Companies." Journal of Accounting and Economics 17: 113-143.
15. DeChow, P., R. Sloan, and A. Sweeney. 1995. "Detecting Earnings Management." The Accounting Review 70: 193-225.
16. DeChow, P., and I. Dichev. 2002. "The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors." The Accounting Review 11 (Supplement): 35-69.
17. DeFond, M., and K. Subramanyam. 1998. "Auditor Changes and Discretionary Accruals." Journal of Accounting and Economics 25 (1): 35-67.
18. DeFond, M., and J. Jiambalvo. 1994. "Debt Covenant Violation and Manipulation of Accruals." Journal of Accounting and Economics 17: 145-176.
19. Francis, J. 1984. "The Effect of Audit Firm Size on Audit Prices: A Study of the Australian Market." Journal of Accounting and Economics 6: 133-151.
20. Francis, J., and D. Simon. 1987. "A Test of Audit Pricing in the Small-Client Segment of the U.S. Audit Market." The Accounting Review 62: 145-157.
21. Francis, J., and J. Krishnan. 1999. "Accounting Accruals and Auditor Reporting Conservatism." Contemporary Accounting Research 16: 135-165.
22. Francis, J., E. Maydew, and H. Sparks. 1999. "The Role of Big 6 Auditors in the Credible Reporting of Accruals." Auditing: A Journal of Practice and Theory 18 (2): 17-34.
23. Frankel, R., M. Johnson, and K. Nelson. 2002. "The Relation between Auditors' Fees for Nonaudit Services and Earnings Management." The Accounting Review 11 (Supplement): 71-105.
24. Heninger, W. 2001. "The Association between Auditor Litigation and Abnormal Accruals." The Accounting Review 76 (1): 111-126.
25. Hill, J., R. Ramsay, and D. Simon. 1994. "Audit Fees and Client Business Risk During the S&L Crisis: Empirical Evidence and Directions for Future Research. " Journal of Accounting and Public Policy 13 (3): 185-207.
26. Johnstone, K. 2000. "Client-Acceptance Decisions: Simultaneous Effects of Client Business Risk, Audit Risk, Auditor Business Risk, and Risk Adaptation." Auditing: A Journal of Practice and Theory 19 (1): 1-25.
27. Johnstone, K., and J. Bedard. 2001. "Engagement Planning, Bid Pricing, and Client Response in the Market for Initial Attest Engagements." The Accounting Review 76 (2): 199-220.
28. Johnstone, K., and J. Bedard. 2003. "Risk Management in Client Acceptance Decisions." The Accounting Review 78 (4): 1003-1025.
29. Johnstone, K., and J. Bedard. 2004. "Audit Firm Portfolio Management Decisions." Journal of Accounting Research 42 (4): 659-690.
30. Jones, J. 1991. "Earnings Management During Import Relief Investigations." Journal of Accounting Research 29: 193-228.
31. Jubb, C., K. Houghton, and S. Butterworth. 1996. "Audit Fee Determinants: The Plural Nature of Risk." Managerial Auditing Journal 11 (3): 25-40.
32. Kinney, W., and L. McDaniel. 1989. "Characteristics of Firms Correcting Previously Reported Financial Earnings." Journal of Accounting and Economics 11: 71-93.
33. Kothari, S., A. Leone, and C. Wasley. 2005. "Performance Matched Discretionary Accrual Measures." Journal of Accounting and Economics 39: 163-197.
34. Krishnan, G. 2003. "Audit Quality and the Pricing of Discretionary Accruals." Auditing: A Journal of Practice and Theory 22 (1): 109-126.
35. Krishnan, J., and Y. Zhang. 2005. "Auditor Litigation Risk and Corporate Disclosure of Quarterly Review Report." Auditing: A Journal of Practice and Theory 24 (Supplement): 115-138.
36. Lee, H., and V. Mande. 2003. "The Effect of the Private Securities Litigation Reform Act of 1995 on Accounting Discretion of Client Managers of Big 6 and Non-Big 6 Auditors." Auditing: A Journal of Practice and Theory 22 (1): 93-108.
37. Loebbecke, J., M. Eining, and J. Willingham. 1989. "Auditors' Experience with Material Irregularities: Frequency, Nature, and Detectability." Auditing: A Journal of Practice and Theory (Fall): 1-28.
38. Mock, T., and J. Turner. 2005. "Auditor Identification of Fraud Risk Factors and Their Impact on Audit Programs." International Journal of Auditing 9: 1-19.
39. Morgan, J., and P. Stocken. 1998. "The Effects of Business Risk on Audit Pricing." Review of Accounting Studies 3 (4): 365-385.
40. Myers, J., L. Myers, and T. Omer. 2003. "Exploring the Term of the Auditor-Client Relationship and the Quality of Earnings: A Case for Mandatory Auditor Rotation?" The Accounting Review 78 (3): 779-799.
41. Nagy, A. 2005. "Mandatory Audit Firm Turnover, Financial Reporting Quality, and Client Bargaining Power: The Case of Arthur Andersen." Accounting Horizons 19 (2): 51-68.
42. Nelson, M., J. Elliott, and R. Tarpley. 2002. "Evidence from Auditors About Managers' and Auditors' Earnings-Management Decisions." The Accounting Review 11 (Supplement): 175-202.
43. Niemi, L. 2002. "Do Firms Pay for Audit Risk? Evidence on Risk Premiums in Audit Fees after Direct Control for Audit Effort." International Journal of Auditing 6 (1): 37-51.
44. Palmrose, Z. 1986. "Audit Fees and Auditor Size: Further Evidence." Journal of Accounting Research 24: 97-110.
45. Public Oversight Board (POB). 2000. Panel on Audit Effectiveness Report and Recommendations, August 31, 2000. Stamford, CT: POB.
46. Pratt, J., and J. Stice. 1994. "The Effects Of Client Characteristics On Auditor Litigation Risk Judgments, Required Audit Evidence, And Recommended Audit Fees." The Accounting Review 69 (4): 639-656.
47. Schipper, K., and L. Vincent. 2003. "Earnings Quality." Accounting Horizons (Supplement): 97-110.
48. Shelton, S., R. Whittington, and D. Landsittel. 2001. "Auditing Firm's Fraud Risk Assessment Practices." Accounting Horizons 15 (March): 19-33.
49. Shu, S. 2000. "Auditor Resignations: Clientele Effects and Legal Liability." Journal of Accounting and Economics 29: 173-205.
50. Simon, D. 1985. "The Audit Services Market: Additional Empirical Evidence." Auditing: A Journal of Practice and Theory 5: 71-78.
51. Simon, D., and J. Francis. 1988. "The Effects of Auditor Change on Audit Fees: Tests of Price Cutting and Price Recovery." The Accounting Review 63: 255-269.
52. Simunic, D. 1980. "The Pricing of Audit Services: Theory and Evidence." Journal of Accounting Research 18: 161-190.
53. Simunic, D., and M. Stein. 1980. "Audit Risk in an Audit Portfolio Context." Contemporary Accounting Research 6 (2): 329-343.
54. Simunic, D., and M. Stein. 1996. "The Impact of Litigation Risk on Audit Pricing: A Review of the Economics and the Evidence." Auditing: A Journal of Practice and Theory 15 (Supplement): 119-135.
55. Subramanyam, K. 1996. "The Pricing of Discretionary Accruals." Journal of Accounting and Economics 22: 249-282.
56. Turner, J., and J. Sennetti. 2001. "Post-audit Restatement Risk and Audit Firm Size." Journal of Forensic Accounting II (1): 67-93.
57. Winograd, B., J. Gerson, and B. Berlin. 2000. "Audit Practices of PricewaterhouseCoopers." Auditing: A Journal of Practice and Theory 19 (2): 175-182.
58. Wright, A., and S. Wright. 1997. "An Examination of Factors Affecting the Decision to Waive Audit Adjustments." Journal of Accounting, Auditing & Finance 12 (1): 15-36.
59. Xie, H. 2001. "The Mispricing of Abnormal Accruals." The Accounting Review 76: 357-373.