包含四篇论文与课件
Incentives and Quality
Wuchun Chi, Dan Dhaliwal, Oliver Zhen Li, and Tzong-Huei Lin
Abstract: We examine whether it is incentives or standards that determine firms’ financial reporting quality. Using a rare natural experiment in Taiwan, we provide evidence that incentives determine reporting quality. Before 2001, the Company Act in Taiwan required private firms with capital levels exceeding a certain threshold to file and publish audited financial statements. This requirement was rescinded in 2001 and private firms since have had discretions over financial reporting. We take advantage of this regime change and divide private firms retroactively into two groups: voluntary reporting firms, those that have continued the reporting practice after the regime change; and non-voluntary reporting firms, those that have ceased the reporting practice after the regime change. We find that financial reporting quality is higher for voluntary reporting firms than for non-voluntary reporting firms, supporting the view that incentives determine the quality of financial reporting.

Keywords: International Accounting, Financial Reporting, Reporting Quality, Loss Avoidance, Income Smoothness, Earnings Conservatism

5/27 (四) 下午

Is Enhanced Audit Quality Associated with Greater Real Earnings Management?
Wuchun Chi, Ling Lei, and Mikhail Pevzner
Abstract: Prior research suggests that high quality auditors constrain the levels of accruals earnings management. We examine whether firms resort to higher levels of real earnings management when their abilities to manage accruals are constrained by high quality auditors. We find that city-level industry expertise and longer auditor tenure are both associated with more overall real earnings management. These variables are also associated with each individual component of real earnings management, i.e., lower abnormal cash flow, higher over-production, and lower discretionary expenditures. Using audit fees as an additional proxy for audit quality, we find similar results. We also find that these associations do not differ between pre- and post-SOX periods. Our paper suggest that an unintended consequence of higher quality auditors constraining accruals earnings management is that clients resort to higher levels of
real earnings management, which is potentially more costly to the shareholders in the long run.

Keywords: real earnings management, audit quality, industry expertise, auditor tenure

5/29 (六) 上午

The Effects of Auditors’ Pre-Client and Client-Specific Experience on Earnings Quality and Perceptions of Earnings Quality: Evidence from Private and Public Companies in Taiwan
Wuchun Chi, Linda A. Myers, Thomas C. Omer, and Hong Xie
Abstract:
We examine the effects of auditors’ pre-client and client-specific experience on earnings quality and perceptions of earnings quality for both private and public companies using audit data from Taiwan, where the names of signing audit partners are disclosed and large private companies as well as public companies are required to publish audited financial statements.
Our pre-client experience measures consist of audit partner pre-client general experience and pre-client industry experience for both private and public companies.
Our client-specific experience measures consist of audit partner tenure and audit firm tenure for private companies and consist of pre-listing audit partner tenure, pre-listing audit firm tenure, post-listing audit partner tenure, and post-listing audit firm tenure for public companies.
Following prior literature, we use discretionary accruals to proxy for earnings quality and bank loan interest rates to proxy for creditor perceptions of earnings quality.
We find that our various measures of pre-client and client-specific experience enhance earnings quality and perceptions of earnings quality for both private and public companies although the impact of each type of experience varies with context.
Our findings are important because they demonstrate the importance of considering prior experience when rotating audit partners for both private and public companies.


Client Importance and Auditor Independence: A Partner-level Analysis
Wuchun Chi, Edward Douthett, and Ling Lei
Abstract: Most prior research examines whether auditors compromise their independence for economically important clients at the firm and office level. Using data from Taiwan, where audit partners are required to sign audit reports, we extend the analysis to the partner level. Uniquely, we include both publicly- and privately-held companies in individual partners’ client portfolios. Using various abnormal accruals measures, the propensity of audit partners to issue first-time going concern opinions for financially distressed clients, the propensity of audit partners to issue modified audit opinions, and the probability that clients meet or just beat earnings targets as proxies for auditor independence, we fail to find support for the concern that audit partners compromise their independence for economically important clients.


Keywords: client importance; audit partner; auditor independence.