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Auditor quality and the presence of audit committees : an association with income smoothing


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Adi, S 2000 , 'Auditor quality and the presence of audit committees : an association with income smoothing', Coursework Master thesis, University of Tasmania.

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Income smoothing is the intentional reduction of reported earnings fluctuations with
respect to some "target" level or trend. This study investigates whether auditor quality or
the presence of audit committees is associated with income smoothing by managers of
Australian firms. It is motivated by the lack of evidence of an association between income
smoothing and corporate governance structures. Discretionary accruals, estimated using a :-
cross-sectional accruals model, are used as a proxy for earnings management, and
smoothing is measured as the excess of (a) the difference between actual reported
operating profit before taxes and targeted operating profit before taxes over (b) the
difference between targeted operating profit before taxes and pre-managed earnings. The
smaller the excess, the more smoothing takes place. This study is mostly inconclusive
about whether auditor quality is associated with income smoothing. In contrast, the
presence of an audit committee has no association with smoothing. While they are
inconclusive, the results generally do not support predictions that the more firms use audit
committees and high quality auditors, in combination, the less likely they are to smooth
reported income. Australian firms tend to smooth reported earnings more than their US
counterparts. While the difference may be attributable to international differences in
requirements for the use of an audit committee, again the results are not conclusive.

Item Type: Thesis - Coursework Master
Authors/Creators:Adi, S
Keywords: Auditing, Smoothing (Statistics), Income accounting
Copyright Holders: The Author
Copyright Information:

Copyright 2000 the Author - The University is continuing to endeavour to trace the copyright
owner(s) and in the meantime this item has been reproduced here in good faith. We
would be pleased to hear from the copyright owner(s).

Additional Information:

Thesis (M.Comm.)--University of Tasmania, 2000. Includes bibliographical references

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