Earnings Management and Audit Qualifications: A Non-Matched Sample Approach ^☆ ☆

A previous version of this chapter was presented at the 35th Annual Congress of the European Accounting Association. The authors are particularly grateful to Iris Stuart and Pauline Weetman for their valuable comments and suggestions.

Abstract

This chapter investigates whether earnings management activities increase the likelihood of receiving a qualified audit report. We have carried out this study with a sample of Spanish companies for the period 2001–2009. Previous research on the issue is not only scarce but also suffers from methodological pitfalls. In all cases, researchers have followed a matched sample approach without considering the implications of such approach for the statistical analysis. Despite its great popularity among researchers in accounting, the use of matched-based sampling is susceptible to produce technical errors in the statistical analysis. The main problem consists in the generalization of results obtained with a nonrandom sample to the whole population of firms. Our results do not show a significant relationship between EM and qualified audit reports. We have also addressed whether the international financial crisis has affected our results and concluded that Spanish companies seem to have used EM during the crisis to push down earnings, probably expecting to take advantage of the positive earnings surprises during the postcrisis period. Nevertheless, the financial crisis has not changed the nature of the EM-qualified opinions relationship.

Citation

Garcia-Blandon, J., Bosch, J.M.A. and Martinez-Blasco, M. (2014), "Earnings Management and Audit Qualifications: A Non-Matched Sample Approach ^☆ ☆

A previous version of this chapter was presented at the 35th Annual Congress of the European Accounting Association. The authors are particularly grateful to Iris Stuart and Pauline Weetman for their valuable comments and suggestions.

", Research in Finance (Research in Finance, Vol. 29), Emerald Group Publishing Limited, Leeds, pp. 29-62. https://doi.org/10.1108/S0196-3821(2013)0000029005