감리양정기준 시행 및 중요성기준 변경과 이익조정의 관련성

The Financial Supervisory Service(FSS), the Korean regulatory agency, implemented the Regulatory Review Measure Guideline(the RRMG) in 2001, which includes quantitative materiality threshold to assess the penalties on the misstatements found in its regulatory review process. Upon announcing the RRMG, the FSS began to strictly adhere to the guideline to determine the penalties on the Korean companies and auditors related to the regulatory review findings. Responding to this, Korean companies and auditors changed their accounting and auditing materiality criteria in line with the RRMG. The RRMG has been substantially recognized as an authoritative guidance on materiality criteria in Korea. This research is to find empirical relationship between earnings management and changes in materiality criteria in line with the RRMG in Korea, under the context of auditor-client negotiation. Previous studies reported that availability of an authoritative guidance on the specific accounting standards influences the auditor-client negotiation outcome. i.e., such guidance availability generally improves the quality of financial reporting. Meanwhile, Ng and Tan(2003) reported that an authoritative guidance availability has a lesser impact on the reporting quality of the companies with the effective corporate governance than those with the ineffective. Also, Cuccia et al.(1995) and Hackenbrack and Nelson(1996) reported that authoritative guidance may be used to justify aggressive accounting decisions when such reporting incentive is strong. Considering the previous studies, this research empirically finds whether the change in materiality criteria in line with the RRMG has resulted in decrease in overall earnings management and whether the reporting companies’ characteristics, such as size, Big 4 client, effectiveness of corporate governance, and strength of earnings management incentive, differentiate the level of earnings management changes. The sample consists of 6,474 firm · year observations selected from the non-financial public companies with the fiscal years ending December 31 from 1997 to 2005(excluding 2001), and whose shares are listed in the Korea Stock Exchange and the KOSDAQ markets. Changes in absolute discretionary accruals reported by the sample firms after implementation of the RRMG in 2001 were investigated. The results indicate that the absolute discretionary accruals decreased after the implementation of the RRMG(time effects are controlled); specifically, the levels of overall absolute discretionary accruals decreased significantly, and those made by large-sized companies and Big 4 clients significantly decreased in addition. Also, incremental absolute discretionary accruals of the companies with effective corporate governance determined by low majority block shareholder ratio or with strong earnings management incentives determined using merger/spin-off firms and large capital-increase firms have significantly positive coefficient value. However, I didn’t find whether the effective corporate governance determined by high foreign shareholder ratio has significant effects or not. These results generally support the propositions of this research that materiality criteria changes caused by implementation of the RRMG deterred overall earnings management, and such deterrences were lesser in the companies with effective corporate governance or with strong earnings management incentives. Compared with the previous researches on materiality which have mostly used surveys, experiments and analytical methods, this research has contributions by employing an empirical method to investigate effects of materiality criteria changes. Also, the results of this research indicate that availability of an authoritative guidance for materiality criteria might increase earnings management in certain situations. It could provide implications for accounting regulations in terms of rules- vs. principles-based approaches.