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How and why does real earnings management affect auditors' evaluations of management's estimates?

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dc.contributorCampbell, Kim Sydow
dc.contributorParsons, Linda M.
dc.contributorPerry, Marcus B.
dc.contributor.advisorHatfield, Richard C.
dc.contributor.advisorHouston, Richard W.
dc.contributor.authorCommerford, Benjamin P.
dc.contributor.otherUniversity of Alabama Tuscaloosa
dc.date.accessioned2017-04-26T14:22:58Z
dc.date.available2017-04-26T14:22:58Z
dc.date.issued2015
dc.descriptionElectronic Thesis or Dissertationen_US
dc.description.abstractPrior research often asserts that, because real earnings management (REM) does not violate Generally Accepted Accounting Principles (GAAP), it is not likely to draw auditor scrutiny. However, informed by Correspondent Inference Theory, I predict and find that observing REM can affect auditors' decisions in audit areas unrelated to REM. This study reports the results of an experiment in which auditors evaluate quantitatively immaterial audit differences arising from management's subjective estimates. I manipulate the presence versus absence of REM, and whether or not the audit difference affects the client's ability to meet an earnings target (i.e., qualitative materiality). Results indicate that, when a quantitatively immaterial audit difference affects the client's ability to meet an earnings target, auditors have a higher propensity to propose an adjustment. Further, regardless of whether or not the audit difference is qualitatively material, auditors are more likely to constrain management's estimates in the presence of REM. Finally, consistent with the notion of a cascading effect of dispositional inferences, I find that auditors' perceptions regarding the aggressiveness of management's disposition mediate the effect of REM on auditors' adjustment decisions. Additional analyses indicate that, when the audit difference is qualitatively material or when REM is present (or both) auditors have a heightened concern that management's estimates are biased. This study contributes to the literature by demonstrating that auditors' altered perceptions, stemming from observing REM, can affect their treatment of audit differences and, ultimately, impact the financial statements.en_US
dc.format.extent110 p.
dc.format.mediumelectronic
dc.format.mimetypeapplication/pdf
dc.identifier.otheru0015_0000001_0001891
dc.identifier.otherCommerford_alatus_0004D_12243
dc.identifier.urihttp://ir.ua.edu/handle/123456789/2984
dc.languageEnglish
dc.language.isoen_US
dc.publisherUniversity of Alabama Libraries
dc.relation.hasversionborn digital
dc.relation.ispartofThe University of Alabama Electronic Theses and Dissertations
dc.relation.ispartofThe University of Alabama Libraries Digital Collections
dc.rightsAll rights reserved by the author unless otherwise indicated.en_US
dc.subjectAccounting
dc.titleHow and why does real earnings management affect auditors' evaluations of management's estimates?en_US
dc.typethesis
dc.typetext
etdms.degree.departmentUniversity of Alabama. Culverhouse School of Accountancy
etdms.degree.disciplineAccounting
etdms.degree.grantorThe University of Alabama
etdms.degree.leveldoctoral
etdms.degree.namePh.D.

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