Disclosure Checklists and Auditors’ Judgments of Aggressive Accounting

2017 ◽  
Vol 27 (2) ◽  
pp. 383-399 ◽  
Author(s):  
Marcel van Rinsum ◽  
Victor S. Maas ◽  
David Stolker
Keyword(s):  
Aggressive Accounting

scholarly journals Measuring fraud and earnings management by a case of study: Evidence from an international family business

2017 ◽  
Vol 7 (1-2) ◽  
Author(s):  
Alicia Ramírez-Orellana ◽  
María J. Martínez-Romero ◽  
Teresa Mariño-Garrido
Keyword(s):  
Earnings Management ◽  
Family Business ◽  
Growth Index ◽  
Financial Statements ◽  
Sales Growth ◽  
Financial Problems ◽  
Spanish Family ◽  
Aggressive Accounting

The aim of this study is to estimate the probability of fraud and earnings management for a specific Spanish family business, Pescanova. In the context of financial statements, the Beneish model is used to detect fraudulent behavior. Our findings reveal that Pescanova presented propensity to commit fraud and carried out aggressive accounting practices before the disclosure of its financial problems. The manipulation index and the probability of manipulation are used as indicators of fraud and earnings management. Results also show that Pescanova made aggressive accounting practices, through the manipulation of Day's sales in receivables indexand Total accruals to total assets. Next, we provided evidence that the Sales Growth index and Leverage index are aligned with the position of technical default shown by the pre-bankruptcy board of Pescanova. Our main contribution is demonstrating the validity of the model for the case of Pescanova. Therefore, the application of the Beneish model might have detected fraudulent behavior, in the years prior to Pescanova's collapse.

scholarly journals Does Revenue-Expense Matching Relate To Going-Concern Audit Opinion Conditional On Firm’s Financial Distress?

2016 ◽  
Vol 32 (3) ◽  
pp. 947-966 ◽  
Author(s):  
Hak Woon Kim ◽  
Sooro Lee
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Financial Distress ◽  
Management Behavior ◽  
Audit Opinion ◽  
Going Concern ◽  
Conservative Accounting ◽  
Aggressive Accounting ◽  
And Behavior

This paper investigates how firms manage the revenue-expense relationship in the presence of a going-concern audit opinion (GCO). Using Korean data, we find that firms with GCOs both delay and accelerate recognition of current expenses for current revenues. We also find that firms in severe financial distress that receive GCOs exhibit conservative accounting, whereas GCO firms in relatively less financial trouble adopt aggressive accounting. Overall, our results imply that firms’ matching extent and behavior provide useful information regarding financial reporting and can explain the earnings management behavior of firms with GCOs.

scholarly journals Propensity to use global solutions of creative and aggressive accounting - in the light of accountants’ opinions

2021 ◽  
Vol 129 ◽  
pp. 03030
Author(s):  
Aleksandra Szewieczek ◽  
Patrycja Ostrowska
Keyword(s):  
Survey Methods ◽  
Value Added ◽  
Global Solutions ◽  
Research Field ◽  
Economic Crime ◽  
Accounting Students ◽  
Job Knowledge ◽  
Creative Accounting ◽  
Accounting Professionals ◽  
Aggressive Accounting

Research background: The processes of globalization contributed to the unification of accounting principles through their standardization and harmonization. However, there is rapid and frequent permeation of innovative and complex transactions and as a result, the area and scale of implementation of creative and aggressive accounting practices are increasing. There is also a new issue of forensic audit, whose task is to prevent economic crime by mainly detecting financial crime and fraud. A research field that requires deepening is the analysis of the perception, understanding, and propensity of accountants to adopt creative and aggressive accounting solutions and their attitude toward forensic audit. Purpose of the article: The main purpose is to analyze the degree of knowledge and adoption of internationally known creative and aggressive accounting solutions and to investigate the propensity of people involved in accounting to commit fraud. Methods: The article employed survey methods and techniques (within an accounting students’ group and among accounting professionals) as well as literature analysis, synthesis, and inference. Findings & Value added: The results indicate that the degree of knowledge of creative accounting is the highest among the issues considered. The most important factors influencing the propensity to commit fraud are pressures caused by third parties (in particular superiors), financial benefits, and the fear of losing a job. Knowledge of the issues of forensic audit is low. It is necessary to conduct promotional activities to increase awareness of the issues studied and to shape appropriate ethical attitudes among accounting professionals.

Aggressive Accounting: Bad for Company Health?

2002 ◽  
Vol 2002 (3) ◽  
pp. 57-66
Author(s):  
David W. Tice
Keyword(s):  
Aggressive Accounting

Are Juries More Likely to Second-Guess Auditors under Imprecise Accounting Standards?

2014 ◽  
Vol 35 (1) ◽  
pp. 101-117 ◽  
Author(s):  
Kathryn Kadous ◽  
Molly Mercer
Keyword(s):  
Accounting Standards ◽  
Legal Liability ◽  
Auditor Judgments ◽  
Aggressive Accounting

SUMMARY U.S. auditors are concerned that less precise accounting standards will cause more second-guessing of their judgments and thus greater legal liability. We report the results of an experiment that tests the validity of this concern. We manipulate the aggressiveness of the client's reporting decision and the precision of the accounting guidance related to the reporting decision. When the client's reporting is conservative, we observe more second-guessing of auditor judgments under the imprecise standard than the precise standard. However, when the auditor allows aggressive client reporting, we observe less tendency toward second-guessing under the imprecise standard. Indeed, rather than being overly harsh, juries appear to be overly lenient when auditors allow aggressive accounting under an imprecise standard. Our results suggest a need for tools to help jurors evaluate auditor judgments under imprecise standards.

Impact of the CFO's affiliation on auditor independence

2011 ◽  
Vol 26 (8) ◽  
pp. 656-671 ◽  
Author(s):  
Nonna Martinov‐Bennie ◽  
Jeffrey Cohen ◽  
Roger Simnett
Keyword(s):  
Auditor Independence ◽  
Archival Studies ◽  
Signal Loss ◽  
Professional Background ◽  
Corporate Fraud ◽  
Content Type ◽  
Professional Skepticism ◽  
Recent Experimental Study ◽  
The Usa ◽  
Aggressive Accounting

PurposeThe purpose of this paper is to examine the potential impact of two affiliation factors, as encapsulated by the chief financial officer's (CFO) prior organizational (alumnus vs non‐alumnus) and professional background (audit vs non‐audit ex‐partner), on auditor independence in post‐Enron and post‐HIH era.Design/methodology/approachThe study is a 2×2 factorial between subjects experimental design with 52 audit partners and managers as participants. The two manipulated independent variables are client CFO prior firm affiliation (alumni vs non‐alumni) and professional background (audit partner vs non‐audit partner providing taxation, accounting and other non‐audit services).FindingsThe results of the study do not appear to signal loss of independence and professional skepticism in auditors' judgment when dealing with an alumni or ex‐auditor CFO. On average, auditors' endorsement of the client's preferred aggressive accounting treatment is low and the audit adjustment is material and significantly greater than the client's proposed adjustment.Originality/valueThe 2001 corporate collapses of Enron in the USA and HIH in Australia have reshaped the auditing profession. HIH, the most publicized corporate fraud in Australia resulting in estimated losses of $5 billion, was partly blamed on Arthur Andersen yielding to management's aggressive accounting policies and failure to display independence as a result of close relationships between the former partners and the audit team. As distinct from a number of prior studies conducted pre‐Enron and pre‐HIH, the results of this study, conducted with experienced audit professionals in Australia, do not support a loss of independence and professional skepticism by auditors in the current post‐Enron and post‐HIH environment and are consistent with the findings of the only other recent experimental study by Kerler III and Killough examining the closeness of the auditor‐client relationship. The results are also consistent with results of recent archival studies which find a decline in earnings management behavior, either because of reduced management incentives or reduced auditor willingness to consent. The evidence of this study lends supports to the latter explanation.

Organizational Form and Accounting Choice: Are Nonprofit or For-Profit Managers More Aggressive?

2014 ◽  
Vol 89 (5) ◽  
pp. 1867-1893 ◽  
Author(s):  
Thomas E. Vermeer ◽  
Christopher T. Edmonds ◽  
Sharad C. Asthana
Keyword(s):  
Organizational Form ◽  
Pension Plans ◽  
Defined Benefit ◽  
Accounting Choice ◽  
For Profit ◽  
Accounting Choices ◽  
Aggressive Accounting

ABSTRACT Although recent academic studies on nonprofits have documented aggressive accounting behavior, these studies have primarily examined the sector in isolation and have not reached definitive conclusions regarding the relative aggressiveness of the nonprofit and for-profit sectors. Using actuarial assumptions for defined benefit (DB) pension plans as a proxy for discretionary accounting choices, we examine whether nonprofit managers respond through their actuarial choices to incentives to manage DB pension assumptions, and whether differences exist in the aggressiveness of these assumptions for nonprofits and for-profits. We find evidence consistent with nonprofits managing pension assumptions when incentives and less monitoring exist. Comparing our nonprofits to a sample of for-profits, we find evidence consistent with nonprofits utilizing more aggressive pension assumptions and making stronger responses to incentives to manage these assumptions. Our findings are consistent with the premise that nonprofits are more aggressive than for-profits when using actuarial estimates that deflate pension obligations and inflate performance.

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