전기 비적정 감사의견이 감사인 교체방향과 이익조정에 미치는 영향 : 비상장기업의 의견구매

This paper examines earnings management behaviors on changing a auditor depending on the type of prior audit opinions in private companies. Specifically, this study tests whether the non-unqualified opinion from a prior auditor influences auditor change and the level of earnings management measured by discretionary accruals and real earnings management. In addition, this study identifies that a relationship between auditor change and earnings management varies depending on the type of auditors (Big 4 and non-Big 4 audit firm). Prior studies suggest that one of the reasons in switching auditor is the conflicts of interest on conservative or strict auditing procedures and audit firms with low quality are preferred as a changed auditor. However, most studies related to auditor change focus on listed companies and there is little study on the effect of audit opinion on a relationship between auditor change and earnings management in private companies. This paper tries to fill the gap. We examine related three issues in private companies. The first, we test whether private firms with non-unqualified opinion and auditor change tend to shop audit opinion. The second, we test whether private firms with non-qualifies opinion and auditor change tend to manage earnings. In this paper, we measure discretionary accruals using Kothari et al.(2005)’s methodology and real earnings management using Cohen and Zarowin (2011)’s methodology as proxies for earnings management. The third, we test whether the earnings management is associated with the direction of auditor change. These issues are based on the general prediction that when firms do not receive an unqualified audit opinion and then switch from a Big 4 to a non-Big 4 audit firm (lower quality auditors), they may be engaging in audit opinion shopping. We also expect that these firms are more likely to engage in aggressive earnings management. To test these predictions, we examine motivations of auditor change using a sample of 8,305 auditor changes in private firm-year observations from 2000 to 2008 and estimate discretionary accruals and real earnings management variables as proxies for earnings management. We set four hypotheses to test the effect of auditor change and opinion shopping on earning management. First of all, we divide the sample into two groups depending on the type of auditor change, that is, Big to small versus small to small. We then investigate a relationship between audit opinion and auditor change. We also investigate a relationship between auditor change and earnings management using different models. Therefore, the subsample is used for the analysis of the first hypothesis while total sample is used for the remaining hypothesis. Several control variables such as size, leverage, cash flows from operations, growth, loss, and so on are included in the model. Empirical findings of this paper are following. First, firms received non-unqualified opinion from Big 4 audit firm in previous year are more likely to engage with non-Big 4 audit firm as a next auditor. However, firms received non-qualified opinion from non-Big 4 audit firm in previous year are indifferent to switch auditor type. This result is consistent with the findings of Davidson III et al. (2005) and suggests that audit opinions in previous year affect choice of auditors next year. Specifically, this finding implies that private firms with non-unqualified opinion tend to prefer auditors with low quality for opinion shopping. Second, among firms switched their external auditors, firms received non-unqualified opinion in previous year are more likely to have high level of discretionary accruals and real earnings management, compared to firms received unqualified opinion. This indicates that receiving non-unqualified opinion motivates firms to change auditors and leads to earnings management. This result is not consistent with prior study with listed companies. Davidson III et al. (2005) find a insignificant relationship between audit opinion and earnings management in listed companies. Third, among firms switched their external auditors, when a firm changes auditor to non-Big 4 audit firm, real earnings management rather than discretionary accruals significantly increases. Our results suggest that these firms may subsequently engage in greater real activities based earnings management. While accrual-based earnings management only affects accrual numbers, real activities based earnings management boosts short-term earnings at the expense of distorting real operations (Roychowdhury 2006). It causes real operations to deviate from their optimal levels, thereby dampening a firm’s ability to generate future cash flows and performance in the long run. It implies that private firms switched from Big audit to non-Big audit firm provide financial statements with low quality. Finally, firms that change a auditor from non-Big 4 audit firm to non-Big 4 audit firm show a higher real earnings management than that of other firms. This result suggests that both type of prior auditor and audit opinions affect a choice of earnings management methods. We extend our analyses by dividing the sample with prior audit opinion and successor auditor type. We also test above analyses with change variables rather than level variables of earnings management again and find identical results. Thus, our results provide a solid evidence that audit opinion affects auditor change and earnings management in private firms. In sum, this paper provides the evidence that both audit opinion in previous year and auditor change influence the level of earnings management. And these findings suggest that private firms may engage in opportunistic behaviors when they change auditors. This paper contributes to related studies by providing the evidence that non-unqualified opinion can affect the level of earnings management and auditor change in private firms. Our empirical findings provide meaningful implications to regulators, academic researchers who interested in private firms's behaviors on a relationship between auditor change and earnings management, and practitioner.