audit market concentration and auditor tolerance for earnings management

《audit market concentration and auditor tolerance for earnings management》由会员上传分享，免费在线阅读，更多相关内容在工程资料-天天文库。

1、AuditMarketConcentrationandAuditorTolerancefor*EarningsManagementJEFFP.BOONE,UniversityofTexasatSanAntonioINDERK.KHURANA,UniversityofMissouri-ColumbiaK.K.RAMAN,UniversityofTexasatSanAntonio1.IntroductionInthispaper,weexaminewhetherconcentrationinU.S.localauditmarketsaffectstheauditor’stoleranc

2、eforearningsmanagementbyauditclients.Inrecentyears,policymakershaveexpressedconcernabouttherisksposedbyauditorconcentration(i.e.,themarketdominanceoftheBig4auditfirms)forauditquality(GovernmentAccountability1Office[GAO]2003,2008;TheAmericanAssembly2005;U.S.Treasury2008).Basically,theconcernistha

3、tmarketconcentrationlimitsacompany’s(particularlyalargecom-pany’s)choiceofauditorandthatoligopolisticdominancecanfostercomplacencyamongauditors,resultinginamorelenientandlessskepticalapproachtoauditsandlowerser-vicequality(GAO2008).Althoughpriorresearch(e.g.,DeFond,Raghunandan,andSubramanyam20

4、02)suggeststhatmarket-basedinstitutionalincentives(e.g.,litigationexposureandreputationloss)promoteauditquality,totheextentthattheseinstitutionalincentivesarenotaguaranteeofauditquality,auditmarketconcentrationcouldmakeauditorsmoretolerantofearningsmanagement,therebyloweringauditquality.Howeve

5、r,althoughnotaddressedinthepriorpolicyliterature(e.g.,GAO2008;U.S.Treasury2008),analternativeviewisthatauditmarketconcentrationcouldincrease,ratherthandecrease,auditquality.Basically,auditorconcentrationcouldraiseauditqual-itybyloweringtheneedtopleasetheclientandbystrengtheningtheauditor’sprof

6、es-sionalvaluesandtraditionalcommitmenttotheindependentwatchdogfunction.Inparticular,byloweringacompany’s(particularlyalargecompany’s)choiceofauditor,amoreconcentratedenvironmentmaydecreasethecosttotheauditorofreportingtruth-fullyduetothereducedprobabilityoftheclientswitchingauditors.Inotherwo

7、rds,thereducedfearofbeingreplacedbyamorecompliantauditor(‘‘opinionshopping’’)maydiscouragea‘‘negotiation’’mentalityandmaketheindividualauditorlessinclinedtowardaccommodatingtheclient’sneedtomanagereportedearningsinanattempttosustainthes