Although corporate environmental accountability is receiving unprecedented attention in the United States from policy makers, the capital market, and the public at large, extant research is limited in its examination of the implications of strategic corporate environmental initiatives on accounting and auditing. The purpose of my dissertation is to address these implications by examining the association between firm environmental initiatives and audit fees, capital expenditures, and earnings quality using multivariate regression analysis. I find that firms engaged in more strategic environmental initiatives tend to have significantly higher audit fees and capital expenditures, and significantly lower levels of earnings manipulation measured using discretionary accruals. These results support the notion that auditors do recognize the importance of environmental initiatives when conducting the year-end financial statement audit, an idea that positively reflects upon the auditor’s monitoring role. The results also demonstrate the increased amount of capital resources required to participate in strategic environmental initiatives, an anecdotal notion that had yet to be empirically supported. This empirical support provides valuable insights on how environmental initiatives materially impact corporate financial statements. Finally, my results extend the extant literature by demonstrating that the superior financial performance reported by environmentally active firms is less likely driven by earnings manipulation by management, and by implication, more likely a result of real economic gains. Taken together, my dissertation establishes a strong and timely foundation for current and future research to explore corporate environmental initiatives in the United States and globally, a topic increasingly gaining momentum in today’s more eco-conscious world.

Introduktion och problembakgrund: Finansiell rapportering är en viktig källa för information till externa intressenter. Analytiker spelar en viktig roll som informationsförmedlare, och bidrar således till en minskad informationsassymetri mellan företaget och dess intressenter. Vidare har analytiker även en övervakande roll i bolagsstyrningen. Real activities manipulation är en form av earnings management där företaget manipulerar sitt resultat genom riktiga affärshändelser. Det finns inga tidigare studier i Sverige på sambandet mellan analytikerbevakning och RAM. Således är det av intresse att genomföra en studie på börsnoterade företag i Sverige, vilket leder till forskningsfrågan: Finns det något samband mellan analytikerbevakning och förekomsten av real activities manipulation (RAM) i börsnoterade bolag i Sverige? Syfte: Studiens syfte är att undersöka sambandet mellan analytikerbevakning och förekomsten av real activities manipulation hos företag noterade på stockholmsbörsens small- mid- och large-cap listor. Studiens första delsyfte är att kartlägga analytikerbevakningen inom urvalet. Det andra delsyftet är att skatta RAM. Teoretisk referensram: Den teoretiska referensramen är byggd på tidigare studier inom earnings management, real activities manipulation och analytikerbevakning. Vidare inkluderas även teorier som förklarar relationen analytikerbevakning och earnings management; signalteorin, agent/stewardshipteorin och prospektteorin. Metod och data: Studien är baserad på en longitudinell design med en deduktiv ansats. Studiens urval är företag noterade på Stockholmsbörsens small- mid- och large-cap listor mellan åren 2005-2015 och består efter exkluderingar av 2706 unika årliga företagsobservationer. Den normala nivån av RAM skattas för varje år och bransch och genomförs genom flertalet OLS regressioner. Residualerna från regressionerna hypotestestas sedan mot analytikerbevakning och tre andra relevanta kontrollvariabler för att undersöka sambandet. Resultat: Studiens resultat är att det absoluta värdet av de undersökta RAM metoderna har ett positivt och signifikant samband med analytikerbevakning. Detta betyder att ju fler analytiker som följer ett företag desto mer manipulation genom RAM förekommer. Sambandet är i likhet med tidigare studier. Vidare finner vi även att signed värdet av RAM metoderna har ett signifikant samband med analytikerbevakning. Signed värdena visar på att de olika RAM metoderna tillämpas för att manipulera resultatet i en viss riktning beroende på nivån av analytikerbevakning. Slutsats: I studien har vi kommit fram till att analytikerbevakning har ett signifikant samband med förekomsten av RAM. Tänkbara anledningar till detta är att manipulation genom RAM kan ske på ett effektivt eller opportunistiskt vis. Vidare kan analytikerbevakningen tänkas bidra till en press på företagsledningen att utföra RAM. Detta för att kunna uppnå resultat i linje med analytikernas prognoser.

Audit reporting lag continues to remain an issue of significant interest to regulators, financial statement users, public companies, and auditors. The SEC has recently acted to reduce the deadline for filing annual and quarterly financial statements. Such focus on audit reporting lag arises because, as noted by the Financial Accounting Standards Board, relevance and reliability are the two primary qualities of accounting information; and, to be relevant, information has to be timely. In my dissertation, I examine three issues related to the audit report lag. The first essay focuses on the association between audit report lag and the meeting or beating of earnings benchmarks. I do not find any association between audit report lag and just meeting or beating earnings benchmarks. However, I find that longer audit report lag is negatively associated with the probability of using discretionary accruals to meet or beat earnings benchmarks. We can infer from these results that audit effort, for which audit report lag is a proxy, reduces earnings management. The second part of my dissertation examines the association between types of auditor changes and audit report lag. I find that the resignation of an auditor is associated longer audit report lag compared to the dismissal of an auditor. I also find a significant positive association between the disclosure of a reportable event and audit report lag. The third part of my dissertation investigates the association between senior executive changes and audit report lag. I find that audit report lag is longer when client firms have a new CEO or CFO. Further, I find that audit report lag is longer when the new executive is someone from outside the firm. These results provide empirical evidence about the importance of senior management in the financial reporting process.

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In 2011, the Financial Accounting Standards Board issued ASU 2011-05, which mandates that Comprehensive Income (CI) and Other Comprehensive Income (OCI) be reported in the performance statements (i.e., either in the income statement or a separate statement of comprehensive income) rather than in the previously-allowed equity statement. Using this issuance as an exogenous event, I examine whether the presentation of accounting information in different statements affects earnings management behavior. In particular, I investigate whether the required presentation of CI/OCI in the performance statements reduces earnings management through selective sales of available-for-sale (AFS) securities in the banking industry. I first document that prior to ASU 2011-05, banks presenting CI/OCI in the equity statements engage in more management of realized gains and losses on AFS securities compared to banks presenting CI/OCI in the performance statements. More importantly, employing a difference-in-differences design, I show a larger reduction in (though not complete elimination of) earnings management for banks mandated to switch the reporting position of CI/OCI, relative to a control group of banks voluntarily using performance statements prior to the mandatory adoption. Overall, this evidence suggests that mandated reporting of CI/OCI in the performance statements reduces banks’ earnings smoothing behavior.

Many corporate managers elect to adopt a new Statement of Financial Accounting Standard (SFAS) early instead of waiting until the mandatory adoption date. This study tests for evidence that managers use early adoption as an earnings management tool in a manner consistent with one or more positive accounting theories.

Real earnings management has been a subject of increasing debate ever since the passing of the Sarbanes-Oxley act in the united states. As research has pointed towards real earnings management increasing this has sparked discussions on whether real earnings management is damaging to companies, or if it is benefiting them, or if it lies somewhere in between. Forthis paper we wanted to examine how the financial incentives of a CEO would affect the usage of real earnings management. Are CEO’s being poorly motivated, and as a result harming their companies? To guide the paper,we decide to formulate our research question thusly: How do different forms of CEO compensation affect real earnings management? In this paper we attempt to find correlations between indicators of realearnings management and threedifferent forms of CEO compensation. For our indicators we follow to a paper by Roychowdhury, titled “Earnings Management Through Real Activities Manipulation”and calculate abnormal cash flow from operations, and abnormal production. These indicate usageof overproduction, reduction of discretionary expenses, and moving sales across periods (Roychowdhury, 2006). For forms of CEO compensation,we measure them as a ratio of total compensation. We track salary, bonuses, and stock ownership. In our results we can see that all three of these are significantly correlated to both of our real earnings management indicators. Bonuses have a positive correlation to abnormal production, and a negative correlation to abnormal cash flow from operations. Salary is positively correlated to both our indicators, and ownership is negatively correlated to both our indicators. Our final conclusion is that yes, the makeup of a CEO’s compensation has a significant effect on the usage of real earnings management within the company.

This research investigated whether earnings management of listed companies, have increased or decreased since the implementation of King II in 2003. This study assessed the extent of earnings management for certain sectors and for large and mid cap companies. The discretionary component of total accruals was used as proxy for earnings management – calculated by using the Modified Jones Model. The top-100 JSE-listed firms by market capitalisation were assessed, excluding the Financial, Mining and Resource Sectors. It was found that discretionary accruals has increased since 1996 and peaked in 2005 (see graph Figure 13). It was concluded with 89% certainty that discretionary accruals during “2003-2009” were higher than during “1996-2002”. Hence, the research suggests that accrual based earnings management is likely to have increased since 2003. However, the results were not statistically significant. Also, the cause of this increase could be due to many factors (not necessarily due to King II). Discretionary accruals were found to be higher for mid cap companies and for the retail sector. However, the analysis was not statistically significant. Discretionary accruals have fluctuated significantly over time and amongst companies. In order to identify which companies and sectors manage earnings the most, a more detailed micro-level investigation, using multiple detection models, is required. Copyright / Dissertation (MBA)--University of Pretoria, 2010. / Gordon Institute of Business Science (GIBS) / unrestricted

Book entries are vehicles used in accounting to accommodate non-cash transactions, timing differences and provisions. The use of book entries is a normal activity in accounting and may have their origin in accrual accounting. The management of a company may apply creative accounting techniques in the form of earnings management, in particular, adopting the practices of income smoothing and taking the so-called ‘big bath’. These practices may result in the financial manager or accountant misusing book entries. This could then lead to information of a different integrity to that which would have resulted had these creative accounting practices not been performed in the company. The question addressed in this dissertation and for which an answer is sought, is whether there is any notable difference in the integrity issues of information supplied through the accounting process and created by real transactions (real events) as opposed to information created by book entries (artificial events). The hypothesis underlying this dissertation is: The integrity of information created by book entries is based on subjective opinions because it is based on future events therefore it is not the same as integrity of information created by real transactions that is based on historical events. The new science is concerned with new guidelines, amongst other things, regarding reality, observation, objectivity, predictions and relationships among events. These new guidelines could be seen as explaining certain aspects which is relevant to the field of accounting. The attributes of a book entry are not based on reality, but are based on subjective predictions of future transactions etc. Another similarity is that a book entry is often not objective but is based on subjective observation. Notable differences were observed in the integrity of the information emerging from a real, historical event and a future event. These differences were established through the application of two research methods, namely, the use of a questionnaire and the analysis of the financial statements of 30 companies listed on The JSE Securities Exchange South Africa (JSE). The influence of book entries on certain ratios was considered, and the ratios influenced by two major book entries, namely, depreciation provision and deferred taxation, differ substantially in interpretation when the two book entries are reclassified. The results of the questionnaire also indicate that a large proportion of the financial managers in practice believe that book entries substantially influence the integrity of information. / Dissertation (MCom Financial Management Sciences)--University of Pretoria, 2003. / Financial Management / unrestricted