The threat of management opportunism as a motivator for auditor changes in Norwegian private firms: An empirical study of earnings management auditor changes

摘要

The reasons for audit changes are typically poorly documented and at times speculated tobe due to management’s desire to engage in opportunistic earnings management. Thisstudy examines the occurrence of earnings management around audit changes in smallNorwegian limited firms (AS). Our dataset of firm characteristics and financial records isgathered from the SNF Database. Discretionary accruals are estimated for firms in oursample and are used as a proxy for earnings management. We present evidence thatsuggests there is no significant occurrence of income increasing earnings managementsurrounding audit changes, but we do find evidence for audit changes that may beinitiated due to the incumbent auditor’s conservatism. We also find evidence that firmswith small auditors that later switch to conservative big auditors are subject to largernegative discretionary accruals. Finally, we find evidence that audit changes in which thefirm received a modified audit opinion in the year prior to the change are also subjectedto larger negative discretionary accruals when compared to audit change firms thatreceived an unmodified audit opinion. Our findings suggest that for private Norwegianfirms the motivation for audit changes is not management’s desire to find a more lenientauditor in order to manipulate earnings.I identified essential papers by searching Oria (NHH’s library search interface for allavailable literature) for academic papers containing the following keywords in bothNorwegian and English: auditor changes, audit change, auditor switching, auditorrotation, earnings management, discretionary accruals, total accruals, audit quality,opinion shopping, audit shopping, audit-qualifications, earnings management and privatefirms, Norwegian earnings management, total accruals