Topic:Non-Audit Services and Earnings Management in the Pre-SOX and Post-Sox Eras
Presenter：Nancy Su, Assistant Professor, School of Accounting and Finance, The Hong Kong Polytechnic University
Time: March 6, 2009（Friday）3:00—4:30PM
Venue: Room 501, Jiageng Bld 2
Abstract：
Extant research on the association between auditor-provided non-audit services (NAS) and earnings management assumes implicitly that all NAS can be equally harmful for auditor independence. However, the SEC prohibited specific kinds of NAS, arguing explicitly that these were potentially harmful to auditor independence. We argue that the decline in observed NAS from the pre-SOX to post-SOX eras resulting from the SEC’s prohibition can be used to distinguish firms that had “harmful” NAS from those that did not. We examine earnings management (using discretionary accruals measures) during the pre-SOX and post-SOX eras for firms that underwent and did not undergo a decline in NAS following the new SEC rules prohibiting certain kinds of NAS. We find that firms that eliminated (presumably harmful) NAS were associated with greater earnings management in the pre-SOX era, but this was confined to downwards earnings management. Further, the downwards earnings management for the firms that eliminated NAS was lower in the post-SOX era than in the pre-SOX era. These results obtain for firms that were more likely to have incentives to manipulate earnings downwards, firms with weaker corporate governance in the pre-SOX than in the post-SOX period, and clients of Big 5 auditors.
Presenter Introduction：
Nancy Su is Assistant Professor in the School of Accounting and Finance, The Hong Kong Polytechnic University. She got Ph.D.in Management Science with concentration in Accounting from the University of Texas, Dallas and B. S. in International Economics from Shanghai University of Finance and Economics. Her research interests include voluntary disclosure, accounting choice, corporate governance and analysts forecasts.
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