Auditoría, comités de auditoría e neutralidade na información narrativa

  1. Babio Arcay, María Rosario
  2. Suárez Fernández, Óscar
  3. Vidal Lopo, Rosario
Journal:
Revista galega de economía: Publicación Interdisciplinar da Facultade de Ciencias Económicas e Empresariais

ISSN: 1132-2799

Year of publication: 2013

Volume: 22

Issue: 1

Pages: 205-228

Type: Article

DOI: 10.15304/RGE.22.1.1276 DIALNET GOOGLE SCHOLAR lock_openDialnet editor

More publications in: Revista galega de economía: Publicación Interdisciplinar da Facultade de Ciencias Económicas e Empresariais

Abstract

The purpose of this study is to examine the rol of auditors and audit committees in the revision of narrative information. Using the tone of financial historical information contained in the Management Commentary as a measure of its quality, we study its relationship with certain characteristics which previous research has identified as determinants of audit quality and audit committees’ effectiveness in disclosure supervision. Our results indicate the presence of bias in the report that is not corrected by auditor or committees. The only outstanding result is auditor’ effort which is related positively to neutrality on tone, while audit tenure and non audit services, although not significantly are negatively related. Neither the independence nor the meeting frequency of the audit committee show any relationship with this measure of the quality of the information.

Bibliographic References

  • Abbott, L.; Parker, J.S.; Peters, G.F. (2004): "Audit Committee Characteristics and Restate-ments, " Auditing: A Journal of Practice and Theory, 23 (1), pp. 69-87.
  • Accounting Standards Board (2005): Reporting Standard 1-Operating and Financial Re-view. London: ASB.
  • Aerts, W. (2005): "Picking up the Pieces: Impression Management in the Retrospective At-tributional Framing of Accounting Outcomes, " Accounting, Organizations and Society, 30 (6), pp. 493-517.
  • Allegrini, M.; Greco, G. (2013): "Corporate Boards, Audit Committees and Voluntary Disclo-sure: Evidence from Italian Listed Companies, " Journal of Management & Governance, 17 (1), pp. 187-216.
  • Arruñada, B. (1999): "The Provision of Non-Audit Services by Auditors. Let The Market Evolve and Decide, " International Review of Law and Economics, 19 (4), pp. 513-531.
  • Association of Chartered Certified Accountants (2012): Re-Assessing the Value of Corpora-te Reporting. London: ACCA.
  • Balsam, S.; Krishnan, J.; Yang, J.S. (2003): "Auditor Industry Specialization and Earnings Quality, " Auditing: A Journal of Practice & Theory, 22 (2), pp. 71-97.
  • Beasley, M.S.; Carcello, J.V.; Hermanson, D.R.; Lapides, P. (2000): "Fraudulent Financial Re-porting: Consideration of Industry Traits and Corporate Governance Mechanisms, " Ac-count Horizons, 14 (4), pp. 441-454.
  • Beattie, V.; Fearnley, S. (2002): Auditor Independence and Non-Audit Services: A Literature Review. London: Institute of Chartered Accountants in England and Wales (ICAEW).
  • Becker, C.; DeFond, M.; Jiambalvo, J.; Subramanyam, K. (1998): "The Effect of Audit Quality on Earnings Management, " Contemporary Accounting Research, 15 (1), pp. 1-24.
  • Bédard, J.; Marrakchi, S.; Chouteau, L. (2004): "The Effect of Audit Committee Expertise, In-dependence, and Activity on Aggressive Earnings Management, " Auditing: A Journal of Practice & Theory, 23 (2), pp. 13-36.
  • Bergstresser, D.; Philippon, T. (2006): "CEO Incentives and Earnings Management, " Journal of Financial Economics, 80 (3), pp. 511-529.
  • Caramanis, C.; Lennox, C. (2008): "Audit Effort and Earnings Management, " Journal of Ac-counting and Economics, 45 (1), pp. 116-138.
  • Carcello, J.V.; Nagy, A.L. (2004): "Audit Firm Tenure and Fraudulent Financial Reporting, " Auditing: A Journal of Practice & Theory, 23 (2), pp. 55-69.
  • Chen, H.; Chen, Z.; Lobo, G.J.; Wang, Y. (2011): "Effects of Audit Quality on Earnings Manage-ment and Cost of Equity Capital: Evidence from China, " Contemporary Accounting Re-search, 28 (3), pp. 892-925.
  • Cho, C.H.; Roberts, R.W.; Patten, D.M. (2010): "The Language of US Corporate Environmen-tal Disclosure, " Accounting. Organizations and Society, 35 (4), pp. 431-443.
  • Clarkson, P.M. (2000): "Auditor Quality and the Accuracy of Management Earnings Fore-casts, " Contemporary Accounting Research, 17 (4), pp. 595-622.
  • Clatworthy, M.; Jones, M. (2003): "Financial Reporting of Good News and Bad News: Evi-dence from Accounting Narratives, " Accounting & Business Research, 33 (3), pp. 171--185.
  • Cohen, J.; Gaynor, L.M.; Krishnamoorthy, G.; Wright, A.M. (2007): "Auditor Communications with the Audit Committee and the Board of Directors: Policy Recommendations and Op-portunities for Future Research, " Accounting Horizons, 21 (2), pp. 165-178.
  • Comisión Nacional del Mercado de Valores (2006): Código unificado de buen gobierno de las sociedades cotizadas. Madrid: CNMV.
  • Cornett, M.M.; McNutt, J.J.; Tehranian, H. (2009): "Corporate Governance and Earnings Ma-nagement at Large US Bank Holding Companies, " Journal of Corporate Finance, 15, pp. 412-430.
  • Courtis, J.K. (1998): "Annual Report Readability Variability: Tests of the Obfuscation Hypothesis, " Accounting, Auditing and Accountability Journal, 11 (4), pp. 459-471.
  • Davidson, R.; Goodwin-Stewart, J.; Kent, P. (2005): "Internal Governance Structures and Earnings Management, " Accounting and Finance, 45 (2), pp. 241-267.
  • Davis, A.K.; Tama-Swett, I. (2008): "Managers' Use of Pessimistic Tone Across Alternative Disclosure Outlets: Earnings Press Releases Versus MD&A, " Conference on Financial Eco-nomics and Accounting. Austin, TX: University of Texas at Austin.
  • Davis, L.R.; Soo, B.S.; Trompeter, G.M. (2009): "Auditor Tenure and the Ability to Meet or Beat Earnings Forecasts, " Contemporary Accounting Research, 26 (2), pp. 517-548.
  • DeAngelo, L.E. (1981): "Auditor Size and Audit Quality, " Journal of Accounting and Econo-mics, 3 (3), pp. 183-199.
  • Dechow, P.M.; Sloan, R.G.; Sweeny, A.P. (1996): "Causes and Consequences of Earnings Ma-nipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC, " Contempo-rary Accounting Review, 13 (1), pp. 1-36.
  • Demers, E.; Vega, C. (2010): Soft Information in Earnings Announcements: News or Noise? (Working Paper, 2010/33/AC). Fontainebleau: INSEAD.
  • Dunn, K.A.; Mayhew, B.W. (2004): "Audit Firm Industry Specialization and Client Disclosure Quality, " Review of Accounting Studies, 9, pp. 35-58.
  • Elzahar, H.; Hussainey, K. (2012): "Determinants of Narrative Risk Disclosures in UK Inte-rim Reports, " The Journal of Risk Finance, 13 (2), pp. 133-147.
  • Engelberg, J. (2008): "Costly Information Processing: Evidence from Information Announ-cements" AFA 2009 San Francisco Meetings Paper. Stanford, CA: American Finance Asso-ciation (AFA).
  • España. Jefatura del Estado (1988): Ley 24/1988, de 28 de julio, del Mercado de Valores (texto consolidado). Boletín Oficial del Estado, no 181, de 29/07/88.
  • Ettredge, M.; Li, C.; Emeigh, E. (2011): Fee Pressure and Audit Quality. (Working Paper).
  • Feldman, R.; Govindaraj, S.; Livnat, J.; Segal, B. (2009): "Management's Tone Change, Post Earnings Announcement Drift and Accruals, " Review of Accounting Studies, 15 (4), pp. 915-953.
  • Financial Reporting Council (2009): Louder than Words, Principles and Actions for Making Corporate Reports Less Complex and More Relevant. London: FRC.
  • Francis, J.; Maydew, E.; Sparks, H. (1999): "The Role of Big 6 Auditors in the Credible Repor-ting of Accruals, " Auditing, 18 (2), pp. 17-34.
  • Fraser, I.A.M.; Henry, W.M.; Pierpoint, J.; Collins, W.M. (2010): Meeting the Needs?: User Views on External Assurance and Management Commentary. Endiburgh: The Institute of Chartered Accountants of Scotland (ICAS).
  • Frazier, K.B.; Ingram, R.W.; Tennyson, B.M. (1984): "A Methodology for the Analysis of Na-rrative Accounting Disclosures, " Journal of Accounting Research, 22 (1), pp. 318-331.
  • García Meca, E.; Sánchez Ballesta, J.P. (2009): "Corporate Governance and Earnings Mana-gement: A Meta Analysis, " Corporate Governance: An International Review, 17 (5), pp. 594-610.
  • García Osma, B.; Guillamón Saorín, E. (2011): "Corporate Governance and Impression Ma-nagement in Annual Releases, " Accounting, Organization and Society, 36 (4-5), pp. 187--208.
  • Ghosh, A.; Moon, D.C. (2005): "Auditor Tenure and Perceptions of Audit Quality, " The Ac-counting Review, 80 (2), pp. 585-612.
  • Girdharry, K.; Simonova, E.; Lefebvre, R. (2011): MD&A-Counterpart to or Distraction from Financial Reporting. Ottawa: Certified General Accountants Association of Canada.
  • Goffman, E. (1959): The Presentation of Self in Everyday Life. New York, NY: Anchor.
  • Habib, A. (2012): "Non-Audit Service Fees and Financial Reporting Quality: A Meta--Analysis, " Abacus, 48 (2), pp. 214-248.
  • Hartnett, N.A. (2006): "Management Disclosure Bias and Audit Services, " Review of Quan-titative Finance and Accounting, 26 (4), pp. 369-390.
  • Henry, E. (2006): "Market Reaction to Verbal Components of Earnings Press Releases: Event Study Using a Predictive Algorithm, " Journal of Emerging Technologies in Accoun-ting, 3 (1), pp. 1-19.
  • Henry, E.; Leone, A.J. (2009): Measuring Qualitative Information in Capital Markets Research. (Working Paper).
  • Hildebrandt, H.W.; Snyder, R.D. (1981): "The Pollyanna Hypothesis in Business Writing: Initial Results, Suggestions for Research, " Journal of Business Communication, 18 (1), pp. 5-15.
  • Hoitash, U.; Hoitash, R.; Bédard, J.C. (2009): "Corporate Governance and Internal Control Over Financial Reporting: A Comparison of Regulatory Regimes, " The Accounting Review, 84 (3), pp. 839-867.
  • Hoskin, R.E.; Hughes, J.S.; Ricks, W.E. (1986): "Evidence on the Incremental Information Con-tent of Additional Firm Disclosures Made Concurrently with Earnings, " Journal of Accoun-ting Research, 24, pp. 1-32.
  • International Accounting Standards Board (2010): IFRS Practice Statement-Management Commentary, A Framework for Presentation. London: IASB.
  • International Auditing and Assurance Standards Board (2012): International Standard on Auditing (ISA) 720 (Revised), The Auditor's Responsabilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statement and the Auditor's Report Thereon. London: IAASB.
  • International Organization of Securities Commissions (2003): General Principles Regarding Disclosure of Management's Discussion and Analysis of Financial Condition and Results of Operations (IOSCO General Principles Regarding MD&A). Madrid: IOSCO.
  • Jensen, M.C.; Meckling, H.W. (1976): "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, " Journal of Financial Economics, 3 (4), pp. 305-360.
  • Johnson, V.E.; Khurana, I.K.; Reynolds, J.K. (2002): "Audit-Firms Tenure and the Quality of Financial Reports, " Contemporary Accounting Research, 19 (4), pp. 637-660.
  • Jones, M. (1996) "Readability of Annual Reports: Western Versus Asian Evidence-A Com-ment to Contextualize, " Accounting, Auditing and Accountability Journal, 9 (2), pp. 86-91.
  • Karamanou, I.; Vafeas, N. (2005): "The Association between Corporate Boards, Audit Com-mittees, and Management Earnings Forecasts: An Empirical Analysis, " Journal of Accoun-ting Research, 43 (3), pp. 453-486.
  • Klein, A. (2002): "Audit Committee, Board of Director Characteristics, and Earnings Mana-gement, " Journal of Accounting and Economics, 33 (3), pp. 375-400.
  • Kothari, S.; Xu, L.; Short, J. (2009): "The Effect of Disclosures by Management, Analysts, and Business Press on Cost of Capital, Return Volatility, and Analyst Forecasts: A Study Using Content Analysis, " Accounting Review, 84 (5), pp. 1639-1670.
  • Lang, M.; Lundholm, R. (2000): "Voluntary Disclosure and Equity Offerings: Reducing In-formation Asymmetry or Hyping the Stock?, " Contemporary Accounting Research, 17 (4), pp. 623-662.
  • Li, F. (2010): "The Information Content of Forward-Looking Statements in Corporate Fi-lings-A Naïve Bayesian Machine Learning Approach, " Journal of Accounting Research, 48 (5), pp. 1049-1102.
  • Li, J.; Mangena, M.; Pike, R. (2012): "The Effect of Audit Committee Characteristics on Inte-llectual Capital Disclosure, " The British Accounting Review, 44 (2), pp. 98-110.
  • Lin, J.; Hwang, M. (2010): "Audit Quality, Corporate Governance, and Earnings Manage-ment: A Meta-Analysis, " International Journal of Auditing, 14 (1), pp. 55-77.
  • Lin, J.; Li, J.; Yang, J. (2006): "The Effect of Audit Committee Performance on Earnings Qua-lity, " Managerial Auditing Journal, 21(9), pp. 921-933.
  • McConomy, B.J. (1998): "Bias and Accuracy of Management Earnings Forecasts: An Evalua-tion of the Impact of Auditing, " Contemporary Accounting Research, 15 (2), pp. 167-195.
  • McMullen, D.A.; Raghunandan, K. (1996): "Enhancing Audit Committee Effectiveness, " Journal of Accountancy, 182 (2), pp. 79-81.
  • Merkl-Davies, D.M.; Brennan, N.M. (2007): "Discretionary Disclosure Strateties in Corpora-te Narratives: Incremental Information or Impression Management?, " Journal of Accoun-ting Literature, 26, pp. 116-194.
  • Merkl-Davies, D.M.; Brennan, N.M.; McLeay, S.J. (2011): "Impression Management and Re-trospective Sense-Making in Corporate Narratives: A Social Psychology Perspective, " Ac-counting, Auditing and Accountability Journal, 24 (3), pp. 315-344.
  • Mock, T.J.; Bédard, J.; Coram, P.; Davis, S.; Espahbodi, R.; Warne, R.C. (2012): "The Auditor's Reporting Model: Current Research Synthesis and Implications, " Auditing: A Journal of Practice and Theory, (no prelo).
  • Monterrey, J.; Sánchez Segura, A. (2008): "Gobierno corporativo y calidad de la información contable: evidencia empírica española, " Revista de Contabilidad-Spanish Accounting Re-view, 11 (1), pp. 67-100.
  • Myers, J.L.; Myers, L.; Omer, T. (2003): "Exploring the Term of the Auditor-Client Relations-hip and the Quality of Earnings: A Case for Mandatory Rotation?, " The Accounting Review, 78 (3), pp. 779-799.
  • Neu, D.; Warsame, H.; Pedwell, K. (1998): "Managing Public Impressions: Enviromental Dis-clorures in Annual Reports, " Accounting, Organizations and Society, 23 (3), pp. 265-282.
  • O'Sullivan, M.; Percy, M.; Stewart, J. (2008): "Australian Evidence on Corporate Governan-ce Attributes and their Association with Forward-Looking Information in the Annual Re-port, " Journal of Management and Governance, 12 (1), pp. 5-35.
  • Petroni, K.; Beasley, M. (1996): "Errors in Accounting Estimates and their Relation to Audit Firm Type, " Journal of Accounting Research, 34 (1), pp. 151-171.
  • Pucheta Martínez, M.C.; De Fuentes, C. (2007): "The Impact of Audit Committee Characte-ristics on the Enhancement of the Quality of Financial Reporting: An Empirical Study in the Spanish Context, " Corporate Governance: An International Review, 15 (6), pp. 1394--1412.
  • Reichelt, K.J.; Wang, D. (2010): "National and Office-Specific Measures of Auditor Industry Expertise and Effects on Audit Quality, " Journal of Accounting Research, 48 (3), pp. 647--686.
  • Revsine, L. (1991): "The Selective Financial Misrepresentation Hypothesis, " Accounting Ho-rizons, 5 (4), pp. 16-27.
  • Roychowdhury, S. (2006): "Earnings Management through Real Activities Manipulation, " Journal of Accounting and Economics, 42 (3), pp. 335-370.
  • Ruiz Barbadillo, E.; Gómez Aguilar, N.; De Fuentes Barberá, C.; García Benau, M.A. (2004): "Audit Quality and the Going-Concern Decision-Making Process: Spanish Evidence, " Eu-ropean Accounting Review, 13 (4), pp. 597-620.
  • Rutherford, B.A. (2005): "Genre Analysis of Corporate Annual Report Narratives, " Journal of Business Communication, 42 (4), pp. 349-378.
  • Sadique, S.; In, F.; Veeraraghavan, M. (2008): Impact of Spin and Tone on Stock Returns and Volatility: Evidence from Firm-Issued Earnings Announcements and the Related Press Cove-rage. (Working Paper).
  • Smith, M.; Taffler, R. (2000): "The Chairman's Statement: A Content Analysis of Discretio-nary Disclosures, " Accounting, Auditing and Accountability Journal, 13 (5), pp. 624-647.
  • Sydserff, R.; Weetman, P. (2002): "Developments in Content Analysis: A Transitivity Index and DICTION Scores, " Accounting, Auditing and Accountability Journal, 15 (4), pp. 523--545.
  • U.S. Securities and Exchange Commission (2003): Final Rule: Disclosure in Management's Dis-cussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations. Washington D.C., WA: SEC.
  • Uang, J. Y; Citron, D.B.; Sudarsanam, S.; Taffler, R.J. (2006): "Management Going-Concern Disclosures: Impact of Corporate Governance and Auditor Reputation, " European Finan-cial Management, 12 (5), pp. 789-816.
  • Zhang, J.; Taylor, D. (2011): "Corporate Risk Disclosures: The Influence of Institutional Shareholders and the Audit Committee, " Proceedings of the Accounting & Finance Associa-tion of Australia and New Zealand (AFAANZ) Conference. Carlton: Wright.