Can Accruals Quality Explain Auditors' Decision Making? The Impact of Accruals Quality on Audit Fees, Going Concern Opinions and Auditor Change

In this paper we investigate whether auditors' decisions can be explained by accruals quality. Using alternative measures of accruals quality developed by prior researchers, we find that a firm with poorer accruals quality is associated with higher audit fees, a greater likelihood of receiving a going concern audit opinion and a greater likelihood of auditor turnover. Recent studies have used accruals quality to proxy for a firm's information risk. Our study contributes to the literature by showing that information risk can be useful in explaining auditors' decisions. Accruals quality measures have also been suggested as a means of identifying earnings management. Existing studies exploring the effects of earnings management on auditors' decisions primarily use discretionary accruals and provide conflicting results. In contrast we find fairly consistent evidence that the likelihood of earnings management affects auditors' decisions adversely