IDEAS home Printed from https://ideas.repec.org/a/kap/iaecre/v27y2021i3d10.1007_s11294-021-09830-7.html
   My bibliography  Save this article

Association Between Discretionary Accruals and Audit Fees and the Role of the Size of the Audit Firm: European Evidence

Author

Listed:
  • Maria I. Kyriakou

    (International Hellenic University
    Hellenic Open University)

  • Konstantina Tsoktouridou

    (International Hellenic University)

Abstract

This study seeks to contribute to the analysis of discretionary accruals and audit fees in two pairs of European countries, Germany and France, and Italy and Spain, during the 2008–2009 financial crisis period, using a time-series and cross-sectional ordinary least squares method with interaction effects. For companies audited by Big 4 audit firms between 2005 and 2018, the study examined the relationship between the use of discretionary accruals and audit fees. This analysis included periods pre-, post-, and during the financial crisis, which started in 2008/2009 and lasted for the next five years, at least in most eurozone countries. The results confirm that Big 4 audit firms earn higher audit fees than non-Big 4 audit firms. Overall, they receive higher audit fees and encourage company management to engage in techniques designed to decrease or increase earnings. The type of earnings manipulation depends on the European country under consideration and whether the financial crisis affected the company. The implications for auditors and accountants are that they must advise the companies in these two pairs of countries differently as the financial crisis affected the second group of countries, Italy and Spain, to a greater extent than the first group, Germany and France.

Suggested Citation

  • Maria I. Kyriakou & Konstantina Tsoktouridou, 2021. "Association Between Discretionary Accruals and Audit Fees and the Role of the Size of the Audit Firm: European Evidence," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(3), pages 185-196, August.
    • Handle: RePEc:kap:iaecre:v:27:y:2021:i:3:d:10.1007_s11294-021-09830-7
    DOI: 10.1007/s11294-021-09830-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11294-021-09830-7
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11294-021-09830-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    2. Jones, Jj, 1991. "Earnings Management During Import Relief Investigations," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 193-228.
    3. Santanu Mitra & Donald R. Deis & Mahmud Hossain, 2009. "The association between audit fees and reported earnings quality in pre‐ and post‐Sarbanes‐Oxley regimes," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 8(3), pages 232-252, August.
    4. Johnson, Marilyn F. & Nelson, Karen K. & Frankel, Richard M., 2002. "The Relation Between Auditor's Fees for Non-audit Services and Earnings Quality," Research Papers 1696r, Stanford University, Graduate School of Business.
    5. David F. Larcker & Scott A. Richardson, 2004. "Fees Paid to Audit Firms, Accrual Choices, and Corporate Governance," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 625-658, June.
    6. Connie L. Becker & Mark L. Defond & James Jiambalvo & K.R. Subramanyam, 1998. "The Effect of Audit Quality on Earnings Management," Contemporary Accounting Research, John Wiley & Sons, vol. 15(1), pages 1-24, March.
    7. Jong†Hag Choi & T. J. Wong, 2007. "Auditors' Governance Functions and Legal Environments: An International Investigation," Contemporary Accounting Research, John Wiley & Sons, vol. 24(1), pages 13-46, March.
    8. Tanja ?estanj-Peri? & Suzana Keglevi? Kozjak, 2020. "The Concept of Prudence in Theory and Practice," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 9(1), pages 156-178, June.
    9. Steven Maijoor & Ann Vanstraelen, 2006. "Earnings management within Europe: the effects of member state audit environment, audit firm quality and international capital markets," Accounting and Business Research, Taylor & Francis Journals, vol. 36(1), pages 33-52.
    10. Kousenidis, Dimitrios V. & Ladas, Anestis C. & Negakis, Christos I., 2013. "The effects of the European debt crisis on earnings quality," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 351-362.
    11. Rani Hoitash & Ariel Markelevich & Charles A. Barragato, 2007. "Auditor fees and audit quality," Managerial Auditing Journal, Emerald Group Publishing, vol. 22(8), pages 761-786, September.
    12. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
    13. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    14. Bao, Shuji Rosey & Lewellyn, Krista B., 2017. "Ownership structure and earnings management in emerging markets—An institutionalized agency perspective," International Business Review, Elsevier, vol. 26(5), pages 828-838.
    15. Ferdinand A. Gul & Charles J. P. Chen & Judy S. L. Tsui, 2003. "Discretionary Accounting Accruals, Managers' Incentives, and Audit Fees," Contemporary Accounting Research, John Wiley & Sons, vol. 20(3), pages 441-464, September.
    16. Fatima Alali, 2011. "Audit fees and discretionary accruals: compensation structure effect," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(2), pages 90-113, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sarowar Hossain & Jenny Jing Wang, 2023. "Abnormal audit fees and audit quality: Australian evidence," Australian Journal of Management, Australian School of Business, vol. 48(3), pages 596-624, August.
    2. Nitai Chandra Debnath & Suman Paul Chowdhury & Safaeduzzaman Khan, 2022. "The impact of audit quality on real earnings management: evidence from Bangladesh," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(2), pages 218-231, June.
    3. Domenico Campa & Ray Donnelly, 2016. "Non-audit services provided to audit clients, independence of mind and independence in appearance: latest evidence from large UK listed companies," Accounting and Business Research, Taylor & Francis Journals, vol. 46(4), pages 422-449, June.
    4. Chi, Hsin-Yi & Weng, Tzu-Ching, 2014. "Managerial legal liability and Big 4 auditor choice," Journal of Business Research, Elsevier, vol. 67(9), pages 1857-1869.
    5. Martin Walker, 2013. "How far can we trust earnings numbers? What research tells us about earnings management," Accounting and Business Research, Taylor & Francis Journals, vol. 43(4), pages 445-481, August.
    6. Mohamed Khalil & Aydin Ozkan, 2016. "Board Independence, Audit Quality and Earnings Management: Evidence from Egypt," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 15(1), pages 84-118, April.
    7. Xingqiang Du & Xu Li & Xuejiao Liu & Shaojuan Lai, 2018. "Underwriter–Auditor Relationship and Pre-IPO Earnings Management: Evidence from China," Journal of Business Ethics, Springer, vol. 152(2), pages 365-392, October.
    8. Tobias Svanstr�m, 2013. "Non-audit Services and Audit Quality: Evidence from Private Firms," European Accounting Review, Taylor & Francis Journals, vol. 22(2), pages 337-366, June.
    9. Isaac Selasi Awuye, 2022. "The impact of audit quality on earnings management: Evidence from France," Post-Print hal-03824396, HAL.
    10. Bao, May Xiaoyan & Cheng, Xiaoyan & Smith, David & Tanyi, Paul, 2021. "CEO pay ratios and financial reporting quality," Global Finance Journal, Elsevier, vol. 47(C).
    11. Bum†Jin Park, 2017. "Auditors’ Economic Incentives and the Sensitivity of Managerial Pay to Accounting Performance," Australian Accounting Review, CPA Australia, vol. 27(4), pages 382-399, December.
    12. Nguyen, Quynh & Kim, Maria H. & Ali, Searat, 2024. "Corporate governance and earnings management: Evidence from Vietnamese listed firms," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 775-801.
    13. Alhababsah, Salem & Alhaj-Ismail, Alaa, 2023. "Does shared tenure between audit committee chair and engagement partner affect audit outcomes? Evidence from the UK," The British Accounting Review, Elsevier, vol. 55(2).
    14. Francis, Jere R., 2004. "What do we know about audit quality?," The British Accounting Review, Elsevier, vol. 36(4), pages 345-368.
    15. Jeffrey Pittman & Baolei Qi & Yi Si & Zi-Tian Wang & Chongwu Xia, 2024. "Individual Auditor Social Responsibility and Audit Quality: Evidence from China," Journal of Business Ethics, Springer, vol. 194(1), pages 119-144, September.
    16. Murya Habbash & Salim Alghamdi, 2017. "Audit quality and earnings management in less developed economies: the case of Saudi Arabia," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(2), pages 351-373, June.
    17. .Reiner Quick & Matthias Sattler, 2011. "Beeinträchtigen Beratungsleistungen die Urteilsfreiheit des Abschlussprüfers? Zum Einfluss von Beratungshonoraren auf diskretionäre Periodenabgrenzungen," Schmalenbach Journal of Business Research, Springer, vol. 63(4), pages 310-343, June.
    18. Demetris Christodoulou & Le Ma & Andrey Vasnev, 2018. "Inference†in†residuals as an Estimation Method for Earnings Management," Abacus, Accounting Foundation, University of Sydney, vol. 54(2), pages 154-180, June.
    19. Maria Strydom & Hue Hwa Au Yong & Michaela Rankin, 2017. "A few good (wo)men? Gender diversity on Australian boards," Australian Journal of Management, Australian School of Business, vol. 42(3), pages 404-427, August.
    20. Giuseppe Ianniello, 2015. "The effects of board and auditor independence on earnings quality: evidence from Italy," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 229-253, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:iaecre:v:27:y:2021:i:3:d:10.1007_s11294-021-09830-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.