Shopping for Accounting Accruals and Restatements

Wen-Ching Chang, Yahn Shir Chen

Research output: Contribution to journalArticle

Abstract

We examine whether companies change their auditor to shop for accounting accruals and whether these shopped accruals are related to financial restatements. The results show that the negative discretionary accruals audited by successor auditors (1) are significantly higher than those audited by predecessor auditors and (2) increase the likelihood of income-decreasing restatements, suggesting understatements for these shopped negative discretionary accruals. These results are salient in companies switching from a Big 4 to a non-Big 4 auditor. Overall, companies shop for accounting accruals successfully, especially from a Big 4 to a non-Big 4 auditor, and consequently restate downward their reported earnings.

Original languageEnglish
Pages (from-to)554-562
Number of pages9
JournalEmerging Markets Finance and Trade
Volume53
Issue number3
DOIs
Publication statusPublished - 2017 Mar 4

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Accounting restatements
Shopping
Auditors
Accounting accruals
Big 4
Discretionary accruals
Income
Financial restatements
Accruals
Restatements
Auditor change

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

Cite this

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Shopping for Accounting Accruals and Restatements. / Chang, Wen-Ching; Chen, Yahn Shir.

In: Emerging Markets Finance and Trade, Vol. 53, No. 3, 04.03.2017, p. 554-562.

Research output: Contribution to journalArticle

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