An Empirical Analysis of Auditor Reporting and its Association with Abnormal Accruals

Butler, Marty; Leone, Andrew J.; Willenborg, Michael

doi:10.2139/ssrn.298700

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An Empirical Analysis of Auditor Reporting and its Association with Abnormal Accruals

38 Pages Posted: 1 Feb 2002

See all articles by Marty Butler

Michael Willenborg

University of Connecticut - Department of Accounting

There are 2 versions of this paper

Date Written: June 9, 2003

Abstract

In this paper, we use a Web-based sampling methodology to obtain and content analyze a large sample of modified audit opinions. Based on this analysis, we re-examine whether certain modified audit opinions are associated with abnormal accruals, as a proxy for earnings management. We find that the documented relation between modified opinions and abnormal accruals rests with companies that have going-concern opinions because such companies have extremely negative accruals. The explanation for these negative accruals is likely severe financial distress since we find that, ceteris paribus, their magnitude is not significantly different from that of a sample of similarly-distressed control firms. Overall, we find no evidence to support inferences in previous research that firms receiving modified audit opinions management earnings more than those receiving clean audit opinions.

Keywords: Abnormal Accruals, Audit Firms, Audit Opinions, Earnings Management

JEL Classification: M41, M43, M49, D21, C81

Suggested Citation: Suggested Citation

Butler, Marty B. and Leone, Andrew J. and Willenborg, Michael, An Empirical Analysis of Auditor Reporting and its Association with Abnormal Accruals (June 9, 2003). Available at SSRN: https://ssrn.com/abstract=298700 or http://dx.doi.org/10.2139/ssrn.298700