This paper reports analyses of data obtained using a field‐based questionnaire in which 253 auditors from one Big 5 firm recalled and described 515 specific experiences they had with clients who they believe were attempting to manage earnings. This approach enables us to analyze separately managers' decisions about how to attempt earnings management and auditors' decisions about whether to prevent earnings management by requiring adjustment of the financial statements. Our results indicate that managers are more likely to attempt earnings management, and auditors are less likely to adjust earnings management attempts, which are structured (not structured) with respect to precise (imprecise) standards. We also find that managers are more likely to make attempts that increase current‐year income, but auditors are more likely to require that those attempts be adjusted, that managers are more likely to make attempts that decrease current‐year income with unstructured transactions and/or when standards are imprecise, and that auditors are more likely to require adjustment of attempts that they identify as material or that are attempted by small clients.
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Supplement 2002
Research Article|
March 01 2002
Evidence from Auditors about Managers' and Auditors' Earnings Management Decisions
Robin L. Tarpley
Robin L. Tarpley
bThe George Washington University.
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2002
The Accounting Review (2002) 77 (s-1): 175–202.
Citation
Mark W. Nelson, John A. Elliott, Robin L. Tarpley; Evidence from Auditors about Managers' and Auditors' Earnings Management Decisions. The Accounting Review 1 March 2002; 77 (s-1): 175–202. https://doi.org/10.2308/accr.2002.77.s-1.175
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