Title: Differences in earnings management between audited and non-audited private manufacturing firms: evidence from Greece

Authors: Vasileios Zisis; John Sorros

Addresses: Department of Business Administration, University of Piraeus, 80 Karaoli & Dimitriou, 185-34 Piraeus, Greece ' Department of Business Administration, University of Piraeus, 80 Karaoli & Dimitriou, 185-34 Piraeus, Greece

Abstract: Using the level of discretionary accruals as a proxy of earnings management, we provide empirical results related to the extent of earnings management among a sample of audited and non-audited non-listed manufacturing Greek firms. In accordance with our expectations of the importance and the effect of external auditing on financial reporting, we observe that private firms that are obliged to provide non-audited financial statements report higher (lower) levels of discretionary accruals during upward (downward) earnings management compared to audited private firms. Moreover, we provide evidence consistent with the argument that some non-audited firms that are close to satisfying the criteria of statutory audit manage earnings in a direction that helps them miss the accounting related criteria. However, we fail to detect that external auditing confines the use of abnormal accruals in cases of debt issue. This result also contradicts our expectation that the low level of financial transparency that is driven by the non-publication of interim financial statements will demotivate private firms to manage earnings when raising debt capital.

Keywords: earnings management; discretionary accruals; non-audited firms; private firms; Greece; audited firms; manufacturing industry; financial statements; external auditing; debt capital; financial transparency.

DOI: 10.1504/IJAAPE.2015.068080

International Journal of Accounting, Auditing and Performance Evaluation, 2015 Vol.11 No.1, pp.84 - 105

Received: 03 Aug 2013
Accepted: 14 Apr 2014

Published online: 16 Mar 2015 *

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