The impact of audit rotation on earnings management in brazilian companies with specialized and non-specialized auditing
Keywords:
Audit rotation; Earnings management; Specialized audit; Non-specialized audit.
Abstract
Objective: This paper identifies the impact of the audit rotation on earnings management in Brazilian companies that have specialized auditing and companies that have non-specialized auditing.
Method: The sample consists of 126 companies listed on the Novo Mercado of B3, due to their high level of governance and for presenting a differentiated level related to a standard of transparency and governance required by investors, between 2015 and 2019. The modified Jones model by Dechow et al. (1995) was used to calculate earnings management to measure accruals and the model used by Chen et al. (2005) was utilized to calculate the specialization. The audit rotation was collected from the Reference Report, characterized as a dummy.
Originality/ Relevance: It’s possible to observe that there is still the distinction of identifying auditor specialization as an impact factor for detecting management and distortions, lacking a standard in the results found until the year 2016.
Resulted: Through the panel data regression, the results showed that the audit rotation doesn’t influence the reduction of earnings management and that there is also no support necessary to state that the audit rotation impacts on lower earnings management in companies with specialized audit. Such results are possibly explained by the sharing of customer data between auditing firms and the characteristics of specialization are not adequate to prove this relationship.
Theoretical/methodological/practical contributions: The study contributes to stakeholders, helping them to identify the best companies for investment based on audit exchange, audit firm specialization and clarity in accounting information. The article also contributes with an expansion of new results for the audit rotation literature and earnings management when weighted by the audit firm's specialization.
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References
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Cardoso, R. L. (2004). Governança corporativa ou gerenciamento de resultados?. Revista Brasileira de Contabilidade, 150, 17-36. https://rbc.cfc.org.br/index.php/rbc/article/view/388/175
Carey, P., & Simnett, R. (2006). Audit partner tenure and audit quality. The Accounting Review, 81(3), 653-676. https://doi.org/10.2308/accr.2006.81.3.653
Chen, C. Y., Lin, C. J., & Lin, Y. C. (2008). Audit partner tenure, audit firm tenure, and discretionary accruals: does long auditor tenure impair earnings quality?. Contemporary Accounting Research, 25(2), 415-445. https://doi.org/10.1506/car.25.2.5
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Costa, D. F., & Carvalho, F. de M. (2016). Relação entre gerenciamento de resultado e governança corporativa: construindo um referencial teórico a partir de uma revisão sistemática da literatura. Revista ForScience, 4(1), 20-41. https://doi.org/10.29069/forscience.2016v4n1.e182
Cunha, P. R., Leite, M., & Moras, V. R. (2019). Efeito da troca da firma de auditoria no gerenciamento de resultados das companhias abertas brasileiras. Contabilidad y Negocios, 14(28), 70-87. https://doi.org/10.1590/S1678-69712012000500004
Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: the role of accrual estimation errors. The Accounting Review, 77, 35-59. https://dx.doi.org/10.2139/ssrn.277231
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193-225. https://www.jstor.org/stable/248303
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulations: ananalysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1-36. https://doi.org/10.1111/j.1911-3846.1996.tb00489.x
Defond, M., & Zhang, J. (2014). A review of archival auditing research. The Journal of Accounting and Economics, 58(2-3), 275-326. https://doi.org/10.1016/j.jacceco.2014.09.002
Defond, M., & Jiambalvo, J. (1994). Debt covenant effects and the manipulation of accruals. Journal of Accounting and Economics, 17(1-2), 145-76. https://doi.org/10.1016/0165-4101(94)90008-6
Dian, F. D. F., & Yuyetta, E. N. A. (2013). Pengaruh arus kas bebas, ukuran KAP, spesialisasi industri KAP, audit tenur and independensi auditor terhadap manajemen laba. Diponegoro Journal of Accounting, 2(4), 166-174. https://ejournal3.undip.ac.id/index.php/accounting/article/view/4466
El Diri, M. (2018). Introduction to Earning Management (1. ed.). Springer.
Fama, E. F. (1980). Agency problems and the theory of the firm. journal of political economy, 88(2), 288-307.
Fávero, L. P., & Belfiori, P. (2017). Manual de Análise de Dados: estatística e modelagem multivariada com Excel, SPSS e Stata (1. ed.). Elsevier.
Firmino, J. E., Damascena, L. G., & Paulo, E. (2010). Qualidade da auditoria no brasil: um estudo sobre a atuação das auditorias independentes denominadas big four. Sociedade, Contabilidade e Gestão, 5(3). https://doi.org/10.21446/scg_ufrj.v5i3.13215
Freitas, R. M. de. (2020). Gerenciamento de resultados por meio dos accruals discricionários nas instituições financeiras brasileiras listadas na bolsa de valores [Dissertação de Mestrado, Universidade Presbiteriana Mackenzie]. Biblioteca Digital de Teses e Dissertações da Universidade Presbiteriana Mackenzie. https://tede.mackenzie.br/jspui/handle/tede/4545#preview-link0
Frisk, D., & Edström, K. J. (2020). Audit rotation, does it matter? A study on audit rotations relationship to audit quality and its contingencies [Master Thesis, Jönköping University International Cusiness Schooll]. Publications of Jönköping University. https://www.diva-portal.org/smash/get/diva2:1433249/FULLTEXT01.pdf
Giolini, A. (2017). Contribuição para avaliação dos tipos de relatórios: um estudo voltado às empresas listadas na BM&FBovespa entre 2011 e 2015 [Dissertação de Mestrado, Pontifícia Universidade Católica de São Paulo]. Biblioteca Digital de Teses e Dissertações da PUC São Paulo. https://tede2.pucsp.br/handle/handle/20354
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Published
2024-02-07
How to Cite
Silva Santos Duarte, J., Ribeiro de Assunção, A., & de Souza Machado, L. (2024). The impact of audit rotation on earnings management in brazilian companies with specialized and non-specialized auditing . Enfoque: Reflexão Contábil, 43(1), 116-132. https://doi.org/10.4025/enfoque.v43i1.61820
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