Title: Auditor awareness of earnings management

Authors: Evangelos Koumanakos, Antonios Georgopoulos, Costas Siriopoulos

Addresses: National Bank of Greece, Credit Division, 262 21, Patras, GR 262 21 Greece; Department of Economics, University of Ioannina, P.O. Box 1186, 45110 Ioannina, Greece. ' Department of Business Administration, University of Patras, University Campus Rio, P.O. Box 1391, Patras 26500, Greece. ' Department of Business Administration, University of Patras, University Campus Rio, P.O. Box 1391, Patras 26500, Greece

Abstract: This study examines whether auditor reporting in Greece is associated with different levels of discretionary accruals – a common proxy for earnings management. We focus our research on 91 cases of quoted companies on the Athens Stock Exchange (ASE). These are listed companies that were asked in year 2003 by the Athens Stock Exchange Board to quantify the effects of the qualifications made by their external auditors and post them in the ASE website. Those auditors| reports were referred to published financial statements of the year 2002. By employing some variations of the traditional Jones-discretionary accrual model, we document that several major Greek companies in financial distress with qualified audit opinions do appear to manipulate their reported earnings by exploiting the weaknesses of the Greek GAAP.

Keywords: auditing; earnings management; financial distress; Greece; qualified opinions; auditor awareness; Greece; auditor reporting; discretionary accruals; Athens Stock Exchange; Greek GAAP.

DOI: 10.1504/IJAAPE.2008.020193

International Journal of Accounting, Auditing and Performance Evaluation, 2008 Vol.5 No.1, pp.50 - 65

Published online: 08 Sep 2008 *

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