A New Approach about Earnings Management and Audit Companies: Empirical Evidences from Brazilian Capital Market

  •  Eduardo Flores    
  •  Joelson de Oliveira Sampaio    
  •  L. Nelson Carvalho    
  •  Fernando Chiqueto    


The aim of this study was to evaluate whether the discretionary accruals of Brazilian public companies would reveal changes as a result of the big four firm that audits them, and whether the companies served by firms of less importance in the sector would denote different behaviors in comparison to those contracting the largest four. For this purpose was formed a sample with 7,875 observations originating from 44 quarters from the period of 1998 to 2009, emphasizing the non-inclusion of the other years due to the Brazilian IFRS harmonization. Statistical estimations were carried out based on this sample using the panel data approach. The results showed differences in the discretionary accruals regardless of the size of the audit firm, and also indicated adverse patterns between clients of the four largest firms. Thus it was established that for the Brazilian capital market, simple segregation between big four and others does not appear to make any sense, contrary to the recommendations of literature. Such benchmarking suggests that future surveys conducted in this jurisdiction, which require the use of the auditor control variable, should do so by means of the inclusion of five groups, one for each large auditing company and one for smaller audit firms.

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