This dissertation investigates how economically-comparable peer firms can be used to obtain inferences about a company’s accounting quality in two different research settings. The first Chapter examines whether auditor industry specialization, measured using auditor market share by industry, improves audit quality. After matching clients of specialist and non-specialist auditors according to industry, size and performance, there are no significant differences in audit quality between these two groups of auditors. In addition, this Chapter uses two analyses that do not rely primarily on matched samples. First, examining a sample of Arthur Andersen clients that switched auditors in 2002, there is no evidence of industry-specialization effects following the auditor change. Second, using a simulation approach, this study shows that client characteristics, and particularly client size, influence the observed association between auditor industry specialization and audit quality. Overall, these findings do not imply that industry knowledge is not important for auditors, but that the methodology used in extant studies examining this issue may not fully parse out the effects of auditor industry expertise from client characteristics. The second Chapter examines whether account-level expectation models for analytical audit procedures can be enhanced by using information from economically-comparable peer firms. This Chapter assesses the effectiveness of three main types of expectation models, with and without including information from peer firms: heuristic, time-series, and industry cross-sectional models. Information from peer firms improves the accuracy of all models and improves the detection power of time-series and industry cross-sectional models. Comparing between models, one-period heuristic models are generally unreliable, and industry cross-sectional models can be more effective than time-series models. These findings may help auditors of public companies and financial analysts in selecting expectation models and finding peer firms to assess the reasonability of a company’s financial information at the account-level.

This paper examines whether Swedish listed firms use research and development (R&D) accounting as a tool for income smoothing (hypothesis 1). One controversial accounting issue concerning R&D is that R&D capitalization could be influenced by earnings management purposes due to a subjective accounting treatment. We also examine whether firms´ degree of fluctuation in return on assets (ROA) has an effect on income smoothing behavior (hypothesis 2). Finally, we investigate if the level of flexibility allowed in the R&D accounting with the different accounting standards, BFN R1, RR 15 and IAS 38 has an effect on income smoothing behavior (hypothesis 3). We study the accounts for 21 firms for the years 1998-2000, 52 firms for 2002-2004 and 59 firms for 2007-2009. Using multiple regression analysis we find that the income smoothing hypothesis is supported in period two (2002-2004). The regression analysis also indicates that firms with low change in ROA tend to capitalize more R&D when they are less profitable than prior year. Our results also imply that the level of flexibility in different accounting standards does not have an effect on income smoothing behavior and hypothesis 3 is not supported.

Revisorer fungerar som en agent mellan standardsättare och företagsledning, de ser till att finansiella rapporter är utformad enligt redovisningsreglerna. Som yrkesgrupp har revisorer både kunskap om hur standarder tillämpas och vilka svårigheter som kan uppstå vid redovisning. Tidigare forskning har visat att det finns incitament hos företagledningen att påverka företagets redovisade resultat i en sådan riktning som gynnar dem själva och/eller företaget, vilket innebär att de har incitament att tillämpa earnings management. Ett sätt att tillämpa earnings management är genom att använda vissa tillgångar och skulder på ett sådant sätt att de inte behöver visas upp i balansräkningen. Balansräkningen är en del av den rapport över företagets finansiella ställning som företagsledningen sammanställer och som sedan ligger till grund för värdering och ekonomiska beslut av exempelvis investerare, analytiker och långivare. Dessa intressenter får då inte alltid får se den rätta bilden av företaget, snarare en bild som är justerad för att visa upp det bästa möjliga, informationen och rapporten är inte transparent. Ett sätt att minska möjligheterna till flexibilitet och val av redovisningsmetoder är genom att i redovisningsstandarder begränsa valmöjligheterna av vilka redovisningsmetoder som kan tillämpas. Denna reglering sker genom standardsättning, en process som tar lång tid från generering till implementering. De övergripande frågeställningarna för arbetet lyder: -Vilka samband finns det mellan revisorers attityder till standardförändringar och deras medvetenhet om earnings management? -Vilka incitament och utrymmen anser revisorer att det finns för företag att utnyttja? Syftet med detta arbete är att försöka förklara revisorers attityder till earnings management och standardförändringar, för att göra detta har vi valt att använda oss av den aktuella standardförändringen i IAS 17 Leasing. Genom att dela upp frågeställningen i delsyften har vi möjlighet att förklara ämnesområdet på djupet. Eftersom syftet med examensarbetet har varit att undersöka attityder, samt att forskarna har en positivistisk kunskapssyn, har studien grundat sig på en kvantitativ undersökning. Undersökningen är utförd i form av en webbenkät som besvarats av både godkända och auktoriserade revisorer i Sverige. Med mål att göra en totalundersökning av populationen har alla registrerade auktoriserade och godkända revisorer i Sverige fått möjlighet att delta i undersökningen. Resultaten har utifrån svaren på enkäten bearbetats med statistiska metoder, främst genom korstabeller och diagram. Utifrån analys och slutsats kan vi se att revisorer generellt har en positiv attityd till standardförändringar och är medveten om att earnings management förekommer inom företagen. De instämmer dock inte med att den kommande standardförändringen i IAS 17 kommer medföra några större effekter på redovisningen. Detta arbete har vidare gett såväl teoretiska som praktiska implikationer exempelvis ökad förståelse för earnings management samt att standardsättarna får information om revisorernas värdefulla åsikter.

Background and problem: This paper illuminates the problem with temptation of earnings management. However, there are particular disadvantages when companies use this technique because it creates an information asymmetry at the stock market. Problem of earnings management is although not a new phenomenon there issue is the quality of financial reporting. The development is concerning, since recently the performance of financial report has a negative trend, a trend that could harm the financial world. If a company does not provide meaningful information the fundamentals of capital market lose confidence. Purpose: This study has two purposes. The first purpose is to evaluate the ability of various discretionary accruals model at Stockholm Exchange Market. The second purpose is concerning a new model in purpose to understand and reveal earnings management. Boundaries: Data contains only business corporations at large cap and operate at the Stockholm Stock Exchange market. Furthermore is this research based on a time series data from year 2000 – 2009 and cross section data from year 2009. Method: The approach of the methodology are inspired of prior earnings management research, as Healy (1985), DeAngelo (1986) and Jones (1991) which have relied on discretionary accruals to detect earnings management. Conclusion: The result indicates that the Jones modified model is the most powerful models to explain earnings management, which also is consistent with prior studies. The result from the extended Jones modified model indicates no improvement, concerning on revealing earnings management. Further, the results confirm that the null hypothesis can be rejected at 1% significant level but the F-value fall drastically compare to Jones modified model. Suggestions for further research: One suggestion is that more research should be conducted in order to develop accounting policies aimed at limiting the application of earnings management. Alternatively, future research should base on data that measures the phenomenon of earnings management at a deeper level. Yet there are some obstacles to gather desire data and therefore it is not easily accessible. / Bakgrund och problem: Den här studien undersöker resultatstyrning, då det finns både fördelar och nackdelar med att tillämpa denna metod. Problemet med resultatstyrning är dock inte ett nytt fenomen, där tidigare studier visar att kvalitet på den finansiella rapporteringen kan ifrågasättas. Företagens årsredovisning skall speglar en rättvisande bild av verksamheten och således är utvecklingen oroväckande eftersom trovärdigheten för den finansiella rapporteringen har fått en negativ trend, en trend som kan skada den finansiella marknaden. Syfte: Den här studien utvärdera och jämföra hur befintliga disketionära modeller förhåller sig på Stockholmsbörsen. Dessutom utvecklas en förbättringsmodell. En model med förklaringsvariabler som ger ett nytt och/eller annorlunda perspektiv på fenomenet. Avgränsningar: Undersökningen omfattar endast företag som är registrerad på large cap och verkar på Stockholmsbörsen. Data som används i studien är dels en tidsserie data från år 2000-2009 och dels tvärsnittsdata från år 2009. Metod: Den här undersökningen tillämpar liknande metoder som tidigare studier, beträffande resultatstyrning såsom Healy (1985), DeAngelo (1986) och Jones (1991) där de definierar diskretionär avsättning som vinstmanipulering. Slutsats: Resultaten visar att Jones modified model förklara och upptäcker resultatstyrning på ett bättre sätt än de andra modellerna. Denna slutsats överrensstämmer med tidigare studier. Resultaten från den utökande Jones modified model visar inte några förbättringar. Dock förkastar den noll hypotesen på 1 % signifikansnivå men F-värdet sjunker kraftigt jämförelsevis mot Jones modified model. Förslag till vidare forskning: Ett förslag är att framtida forskning bör bedrivas i syfte för att utveckla redovisningsprinciper som begränsar resultatstyrning. Alternativt förslag är att samla in data som mäter resultatstyrning på en djupare nivå, dock är det problematiskt med dagens

Starting from 2005 the disclosure of financial forecast for Taiwanese public companies has not been mandatory, firms can decide whether they want to disclose, and if so, how and when to disclose. How does the investor's reaction affect this decision? Furthermore, what is the trade-off between transparency and precision? This study develops a theoretical model in which the voluntary disclosure of earnings forecast is a double-edged sword. Such disclosure may reduce information asymmetry, but simultaneously allows entrepreneurs to hype the stock. The proposed model assumes that insiders might manipulate information and investors can learn with bounded rationality. The analytical results demonstrate that entrepreneurs may forgo earnings forecast disclosure if they can achieve greater profit under non-disclosure. In the multiperiod case, this study shows that insiders would reduce their forecast manipulation behavior due to the cost of forecast error and diminishing marginal expected profit. This study accommodates an explanation of the decrease in voluntary disclosure and the popularity of investor conferences in Taiwan. The inferences of the proposed model are examined based on forecasts issued by Taiwanese listed firms. The empirical results evidence a positive relationship between insiders¡¦ trading profit and manipulation of earnings forecast. Additionally, insiders¡¦ trading profit regarding forecast revisions is greater under voluntary disclosure than mandatory disclosure. This study offers important insights into earnings forecast policy in emerging markets.

The financial sector due to the particularity of the industry, the government set a lot of control provisions, therefore most of the earnings management research will set financial sector excluded. In fact, the financial sector, in order to comply with the legal provisions, which the motives of earnings management may be even higher than the average company. This study used The Modified Jones Model to calculate the proxy of discretionary accruals as an earnings management¡Ffinancial holding company engaged in the amount of the core subsidiary of the format category to measure the extent of its related diversification¡Fand the implementation of SFAS No. 34 divided into two study period, to explore the relationship between the relevant level of diversification and earnings management, earnings management and financial asset disposition gains and losses, earnings management and financial performance is different. Empirical results show that: (1)Before and after of SFAS No. 34 implementation , the higher the degree of diversification of financial holding company, the earning management were higher.(2) Before and after of SFAS No. 34 implementation, the financial holding company will make use of the disposal of financial assets in order to increase the gain on disposal for earnings management.(3) Before and after of SFAS No. 34 implementation, the financial holding company will engage in earnings management operations in order to enhance the company's financial performance.

This study examines the determinants of tax aggressiveness. I utilize the unrecognized tax benefits (UTB) disclosed by the adoption of Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) to proxy for firms’ tax aggressiveness. I hand collect UTB disclosures for 562 calendar year-end firms in the S and P 1500. Controlling for firms’ incentives and abilities to engage in aggressive tax positions (tax factors) and firms’ discretion over recognizing the financial reporting benefits of aggressive tax positions, I examine whether firms’ level of aggressive tax positions is influenced by (1) financial reporting aggressiveness, (2) choice of auditor, (3) analyst coverage, and (4) corporate governance quality. Using ordinary least squares regression, I examine the determinants of firms total UTB and its permanent and temporary components. I find that UTB and its permanent component are positively associated with firm size, presence of foreign operations, research and development activity, selling, general and administrative activity, firm value, and the probability that the firm engages in tax shelter activity. However, the temporary component is only increasing in firm size. Also, I find that UTB and its permanent component are positively associated with firms engaging in financial reporting aggressiveness and increasing auditor provided tax services, but negatively associated with analyst coverage, while the temporary component is only positively associated with financial reporting aggressiveness. Finally, I split the sample based on firms’ use of discretion over recognizing the tax benefits of aggressive tax positions prior to FIN 48 adoption. I find that firms which aggressively recognize tax benefits prior to FIN 48 adoption (i.e. firms that increased UTBs at FIN 48 adoption) have UTBs that are positive and significantly associated with (1) the probability that a firm engages in tax shelter activity, (2) auditor provided tax services, and (3) their record of using last chance earnings management to meet or beat analyst forecasts. These associations are not significant for firms that did not aggressively recognize tax benefits prior to FIN 48 adoption, suggesting that firms’ financial reporting aggressiveness is positively associated with firms’ level of tax aggression.

For the evaluation of banks¡¦ performance, non-performing loans ratio and capital adequacy ratio are the two major indicators other than earnings performance. Among the various tools for earnings manipulation, loan loss provisions may be the only one that could affect bank¡¦s earning numbers, non-performing loans ratio and capital adequacy ratio simultaneously. In order to satisfy the need to increase earnings and capital adequacy ratio and to decrease non-performing loans ratio, banks may have motivation to conduct earnings management. The purpose of the study is thus to investigate whether there is a relationship between the earnings management by using the discretionary loan loss provisions and the earnings before loan loss provisions, non-performing loans ratio, capital adequacy ratio, asset size, loan growth rate, and loans uncollected. In addition, the study divides the sample banks into the following categories: (1) commercial banks versus others, (2) new banks versus old banks (based on the time the bank was founded), and (3) state-run versus non-state-run (based on whether the president of the bank is appointed by the government). The study also intends to examine whether earnings management conducted by the bank¡¦s management is different between the various categories. Based on the empirical results from the Taiwan Economics Journal (TEJ) database, the study found: (1) the three variables of earnings before loan loss provisions, asset size, and loans uncollected are significantly related to the earnings management by using discretionary loan loss provisions, and the higher the three variables, the higher the degree of earnings management; (2) non-performing loans ratio, capital adequacy ratio, and loan growth rate are not found to be significantly related to the earnings management by using discretionary loan loss provisions; (3) state-run banks have conducted more earnings management than non-state-run banks; and (4) there is no significant result found in other analyses for other categories.

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From the Asian Finance Crisis in 1997, to many scandals in U.S.A. in 2001, and lots of fraudulent practices for many years in Taiwan, these cases severely injured the investors and the whole society. In fact, before these fraud cases happening, a lot of scholars have proposed that manager can manipulate reports with accounting tactics to manage earnings and window dress the performance of the company. After these scandals bursting, the researches which discuss how to regulate CEO¡¦s behavior by using corporate governance mechanism get more attentions. A lot of researches point out that CEO¡¦s option-based compensation might be one of the reasons which result in the self-interested behavior, and provide their views about the monitoring effects of the corporate governance mechanism. However, the researches that discuss whether CEO¡¦s self-interested behavior will influence the monitoring effects of the corporate governance mechanism are few. This paper divides the pubic listed company that had issued warrants to CEO from 2001 to 2005 into two groups by the ratio of option-based compensation in CEO¡¦s total compensation. We want to know that whether the corporate governance mechanism has the same influence in earnings management and company¡¦s performance in different CEO¡¦s option-based compensation ratio. The corporate governance and compensation variables we used are institutional ownership in the firm, the number of institutional directors, board size, percent of independent outside directors on the board, percent of inside directors on the board, director and executive officer stock ownership, company size, and CEO¡¦s option-based compensation ratio. The conclusions as follows: 1. CEO¡¦s option-based compensation ratio forms the threshold effect to the monitoring effect of the corporate governance mechanism. When CEO¡¦s option-based compensation takes particular proportion of total CEO¡¦s compensation, the corporate governance mechanism will be more effective. 2. The corporate governance mechanism that has significant influence in earnings management and operating performance will be different when CEO¡¦s option-based compensation ratio is different. 3. Among these corporate governance mechanism, percent of independent outside directors on the board is the only one that can have similar and significant influence in earnings management no matter how high the CEO¡¦s option-based compensation ratio is. It may relate to the independence of independent outside directors.