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Formatted: Superscript
Deleted:
Table of Contents
1. Introduction......4
Deleted:
2. Theoretical Framework...7
2.1
Introduction7
2.2
2.3
Auditors-client relation....10
2.3.1 Auditor independence.10
2.3.2 Threats to auditors independence...11
3. Hypotheses..13
3.1
3.2
Hypothesis development..14
Research design16
4.1.1 Modified Jones model.16
4.1.2 Dependent variable and audit fee model18
4.2
Data description19
4.2.1 Descriptive
statistics20
5. Empirical analysis......21
5.1
5.2
Conclusion....30
6.2
Implications..31
6.3
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The relation between Auditors Fees and Earnings Management in Dutch firms
References.........34
Appendix A...37
1.
Introduction
The purpose of this paper is to examine the relation between the fees paid to audit
firms for audit and non-audit services and earnings management.
The association between earnings management and auditors fees has been a research
topic investigated in many papers (e.g. Larcker et al. [2003], Abbott et al. [2006],
3|Page
Frankel et al. [2002], Ashbaugh et al [2003]). The relation between auditors fees and
earnings management is an interesting topic to investigate because of the ongoing
debate about the accounting profession and the appropriateness of providing audit and
non-audit services. Auditor independence is seen as very important for the reliability
and integrity of financial reporting (Wallman [1996]). Critics contend that the
extensive fees paid to auditors, especially for non-audit services, increase the financial
reliance if the auditor on the client (Becker et al. [1998]). As a result, independence of
the audit firm may be in jeopardy. Although recent concerns about auditor
independence have focused on the non-audit services to audit clients and the nonaudit fees, it is possible that audit fees create similar bonding or reputational
incentives. This paper will thus try to find an association of audit fees and non-audit
fees with earnings management. While there are a number of earnings management
studies about this association for US and UK firms (e.g. Frankel et al. [2002]), I will
focus on large Dutch firms.
Due to recent developments under the Dutch law, Dutch firms are mandatory to
disclose audit fee data. As of the 27th of June article 382a (BW 2, title 9) is developed
which outlines the specific items of disclosure. Under this new article disclosure of
the following items of audit fees is mandatory: audit services, other audit services,
fiscal services and non-audit services. The disclosures are intended to provide
information useful to investors in evaluating whether non-audit fees have impaired the
auditors independence. It is an interesting topic to investigate because audit firms in
the Netherlands initially sold their advisory branches, but have been starting to give
advice again and this branch is growing as is indicated by the NIVRA in their
comments on independence. Not only is this an interesting topic to research and
discuss, it also contributes to existing research in a way that this research has never
done before under Dutch firms, this because of the newly available information
because of the mandatory disclosure of audit fees. Audit fees and non-audit-fees can
now be examined and this study attempts to shed light on earnings management in
Dutch firms, it also attempts to find a relation between audit fees and earnings
management.
Based on the above mentioned information I have developed the following research
question for this thesis:
4|Page
The relation between Auditors Fees and Earnings Management in Dutch firms
To what extent is there an association between audit fees, non-audit fees and earnings
management of Dutch firms, who classify as large under BW 2 title 9.
To answer this research question, data was collected from the Datastream database.
Data of the year 2008 was collected and this resulted in a sample size of 80 Dutch
firm who classify as large and were listed on the Dutch exchange market. The data is
used to test the three hypothesis identified in this study. Next to these hypotheses I
have also identified four audit metric in determining the relationship between
auditors fees and earnings management. The first hypothesis shows that there is a
positive relationship between non-audit fees and discretionary earnings, which
indicates that when non-audit fees increase and when the ratio of non-audit fee to total
fees increases, earnings management also increases. In contrast with the results of
non-audit fees, we found a significant negative relationship with earnings
management and audit fees. The findings also suggest that if we combine both of the
variables, there is no significant relationship with earnings management. This support
the claim of Frankel et al. (2002) who suggest that audit fees and non-audit fees have
both different incentives and combining the two will only masks their effects.
This thesis started with an introductory paragraph which announces the subject, the
purpose and the motivation of the study, followed with the research question and a
summary of the findings. The following chapter of the thesis is the theoretical
framework. This chapter is a review of literature to develop a theoretical framework
on what is already known about the subject. In the third chapter the hypotheses are
developed. The hypotheses are developed based on the research question and previous
literature. In the fourth chapter of this thesis the research design is explained. In this
chapter I will discuss the models that will be used to test the hypotheses. This chapter
also revolves around the data sample used for the study. The fifth chapter outlines
empirical analysis and findings of the research. The final chapter of this thesis
includes the conclusion. This chapter will also outline implications for further studies
and limitations of this research.
5|Page
2.
Theoretical Framework
2.1
Introduction
As of the 27th of June the Dutch law changed with regards to the disclosure of audit
fee data. As of this date article 382a (BW 2, title 9) was developed which requires
mandatory disclosure of audit fee for Dutch firms who classify as large. The
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The relation between Auditors Fees and Earnings Management in Dutch firms
following items of audit fees needs to be disclosed: - audit services, - other audit
services, - fiscal services and non-audit services. The disclosure of audit fee is
intended to provide information useful to investors in evaluating whether non-audit
fees have impaired auditor independence. It can also inform investors about financial
reporting quality, including earnings management. Auditor independence is seen as
very important for the reliability and integrity of financial reporting (Wallman, 1996).
Auditor independence not only comprises independence of mind but also, and maybe
more important in financial reporting, independence in appearance.
In the theoretical framework I will perform a review of previous literature on the
subject and includes an examination of relevant earnings management topics, audit
services and non-audit services performed by the auditors and other matters that need
to be reviewed to better understand the empirical search for the relation between
earnings management and audit fees. The following subsection will discuss earnings
management, the incentives of management to manage earnings and the different
measures of earnings management, in this case the use of discretionary accruals.
Subsection 2.3 will discuss audit fees and the possible threats and auditors incentive
to allow earnings management.
2.2
Earnings management
8|Page
The relation between Auditors Fees and Earnings Management in Dutch firms
As described above managers could have several incentives for earnings management,
the scope of this study will be based on the capital market motivation in particular
discretionary accruals. In the following subsection we will discuss the discretionary
accruals as a way to manage earnings in further detail.
9|Page
The focus of this research is to capture the auditors role in managing the earnings in
Dutch firms. The scope of this research, with regards to managers incentives to
managers earnings, will be limited on the capital market motivations and in particular
discretionary accruals. In this type of earnings management auditors are expected to
take steps in detecting earnings management and is thus relevant for this research.
2.3
Auditor-client relation
The relation between Auditors Fees and Earnings Management in Dutch firms
auditor itself but also for the client and their audited figures. Beattie et al, 1999 argued
that there are four factors that could influence the perceived auditors independence:
Non-audit services.
In the following subsection we will further discuss the influential factors economic
dependence and non-audit services on auditors independence and their relation with
earnings management.
3.
Hypotheses
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The relation between Auditors Fees and Earnings Management in Dutch firms
3.1
Based on the prior research I have establish a theoretical model of this thesis, this
model is illustrated in figure 3.1 (a). Based on this theoretical model I have developed
a research model, see figure 3.1 (b). Audit services will be operationalized by audit
fees while non-audit services will be operationalized by non-audit fees. Discretionary
accruals will serve as a proxy for earnings management.
Non-audit
Services
Audit fees
Discretionary
accruals
Non-audit
fees
Earnings management and the relation with audit fees and non-audit fees havent yet
been extensively researched in the Netherlands, in comparison with other notable
countries such as the US and the UK. The economic environment in which Dutch
firms operate could be compared with the economic environment of the UK and US.
The characteristics of these economic environments are international orientated, open
economy, strong equity market, investor protection, etc.
The reason that this relation had not been researched yet, is the newly available data
for Dutch companies. As of the 27th of June the Dutch law changed with regards to
the disclosure of audit fee data. As of this date article 382a (BW 2, title 9) was
developed which requires mandatory disclosure of audit fees of Dutch companies who
classify as large.
As discussed in the previous chapter and as shown in the above figure I will use
discretionary accruals as a measure of earnings management. This measurement type
of earnings management is the only one in which the auditors plays a significant role
13 | P a g e
in detecting earnings management. The thesis research model will help to answer the
research question and will help to develop the hypotheses of this research.
3.2
Hypothesis development
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The relation between Auditors Fees and Earnings Management in Dutch firms
As previously discussed audit fees and non-audit fees could give different incentives
for earnings management. The results of Frankel et al (2002) and Ashbaugh et al
(2003) support the claim that audit fees and non-audit fees in relation with earnings
management give different incentives. Their results show that total audit fees are not
significant and if audit and nonaudit fees are bonded it will masks their differential
incentive effects. Other studies such as Simunic (1984) and Antle et al (2006) model
the joint determination of audit- and non audit fees. When an auditor provides both
services the auditor will be bonded economically to the client. Simunic (1984)
demonstrates, an increase in non-audit fees might actually increase the audit fees as a
result of spillover effects. To capture the explicit bond between the audit firm and the
client we also test the following non-directional hypothesis, stated in the null form:
4.
The research will consist of an empirical analysis of the Dutch market data. The audit
fee data of the year 2008 will be used because as of this year the disclosure of audit
15 | P a g e
fee was made mandatory. This chapter will focus on the research design and will
describe the research models. This chapter will also provide a description of the data
that is used.
4.1
Research design
To test the previous formulated hypothesis, earnings management in Dutch firms must
first be identified. As described in the theoretical framework I will use discretionary
accruals as the measure of earnings management. The usual starting point for the
measurement of discretionary accruals is total accruals. A particular model is then
assumed for the process generating the nondiscretionary of total accruals. Dechow et
al. (1994) considers five models of the process generating nondiscretionary accruals.
This paper evaluates the ability of alternative models to detect earnings management.
The following five models are described in the Dechow paper: the Healy model, the
DeAngelo model, the Jones model, the modified Jones model and the Industry model.
The results suggest that all the models considered appear to produce reasonably well
specified tests. The power of the tests is low earnings management of economically
plausible magnitudes. The paper finds that the modified version of the model
developed by Jones (1991) provides the most powerful tests of earnings management.
Based on the results of the Dechow et al. paper I will use the Modified Jones model to
detect earnings management.
16 | P a g e
The relation between Auditors Fees and Earnings Management in Dutch firms
When the total accruals are indentified we need to determine the non-discretionary
accruals. In the modified model, non-discretionary accruals are estimated during the
event period as:
NDAt = 1 (1/A-t) + 2 (REVt - RECt) + 3 (PPEt).
where
NDA = estimated nondiscretionary accruals;
REVt = revenues in year t less revenues in year t-1 scaled by the total assets at t-1;
RECt = net receivables in year t less receivables in year t-1 scaled by the total assets at t-1;
PPEt = gross property plant and equipment in year t scaled by the total assets at t-1;
A-t = total assets at t-1; and
1, 2, 3 = firm-specific parameters.
The OLS (Ordinary Least Squares) method can be used to obtain the estimates 1, 2, 3 of
1, 2, 3.
4.2
Data description
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The relation between Auditors Fees and Earnings Management in Dutch firms
The data used in this study is from 80 organizations who were listed on the exchange
market, all organizations are classified as large under BW 2 title 9 and are mandatory
by law to disclose audit fee data. The data of the year 2008 will be used for examining
earnings management and the relation of earnings management with auditors fees.
Although all organizations are mandatory to disclose audit fee data the NIVRA has
published a research on how well the auditors fees are disclosed in the annual reports
of 2008 and indicates that the companies disclose the audit fees differently. Based on
this research I will focus on organization who have disclosed the audit fee with the
following items: audit services, other audit services, fiscal services and non-audit
services. This way I will try to minimize errors in the results of this study.
The financial data was conducted from Datastream for 119 firms, who were listed on
the Dutch exchange market. Because of the recently changed law to disclose audit fee,
the audit fee data was not yet available for the year 2008 in Datastream. The fee data
was collected through manual inspection of the annual reports. The annual reports
were collected from the companys websites. Some organizations were omitted from
the data set for a number of reasons. The reasons to omit the organization include:
no financial data of the year 2007 was found (used in the Modified Jones model);
no distinction between audit fee and non-audit fee in the disclosure of the 2008
annual reports;
not all data was available for some variables used in our model.
19 | P a g e
Minimum
Maximum
Mean
Std. Deviation
80
0%
80,12%
17,32%
0,1686045
NONAUDIT
80
5.000.000
509.934,51
992.375,182
AUDIT
80
42.000
23.000.000
2.195.707,76
4.426.665,309
TOTAL
80
52.000
28.000.000
2.705.629,78
5.206.332,231
Valid N (listwise)
80
The sample consist of 80 firms in the year 2008. All variables are expressed in euros.
NARATIO is the ratio of non-audit fees divided by total fees. The minimum of this
ratio is 0% whereas the maximum is 80,12%. Because not all firm in our example
have non-audit fees the minimum percentage is zero. There is a mean of 17,32%.
The next fee metric that is identified is the absolute value of non-audit fees
(NONAUDIT) again the minimum of this value is 0 as explained earlier. The
maximum is non-audit fees 5.000.000 of Unilever N.V. The mean is 509.935.
The absolute value of audit fees (AUDIT) has a minimum of 42.000 and a
maximum of 23.000.000 (again Unilever N.V.). The value has a mean of
2.195.708. The last fee metric I have identified is the absolute value of total fees
(TOTAL). The minimum is 52.000, the maximum 28.000.000 and the mean is
2.705.630.
5.
Empirical Analysis
The results of this research will consist of two parts. First we will determine the
absolute amount of the discretionary accruals. This amount will be calculated by the
modified Jones model. When the discretionary accruals are calculated we will show
20 | P a g e
Deleted:
The relation between Auditors Fees and Earnings Management in Dutch firms
the results of the audit fee model and determine if audit-fees, non-audit fees and
earnings management are related.
Minimum
Maximum
Mean
Std. Deviation
NDA
81
-2,0979
4,0747
-,986515
,6280470
Valid N (listwise)
81
Because of some outliers/results the mean give some strange results. The mean should
be zero when there is a normal-like distribution. To see if there is a normal-like
distribution we have plotted the following histogram:
As we can see the centre of the histogram of the residual is around zero and thus
normally distributed.
After determining total accruals I will now determine the non-discretionary accruals
to eventually determine the discretionary accruals. Based on the coefficients
determined in calculating the total accruals I am able to determine the amount of the
21 | P a g e
Minimum
Maximum
Mean
Std. Deviation
NDA
81
-1,6697
,8293
,134774
,2764497
Valid N (listwise)
81
The next step in determining the discretionary accruals is the most easy step. I will
now deduct the calculated non-discretionary accruals from the total accruals for each
firm.
Table 5.3
Model Summary
Model
22 | P a g e
R Square
Adjusted R
Std. Error of
Square
the Estimate
The relation between Auditors Fees and Earnings Management in Dutch firms
,976a
0,952
0,949
1,876E9
Table 5.4
ANOVAb
Model
1
Sum of Squares
df
Mean Square
Regression
5,147E21
8,578E20
Residual
2,569E20
73
3,519E18
Total
5,404E21
79
Sig.
,000a
243,784
Table 5.5
Coefficientsa
Model
Standard
Unstandardized Coefficients
B
Std. Error
Beta
Sig.
(Constant)
-5,508E8
1,008E9
-,546
,586
NARATIO
2,091E9
1,257E9
,043
1,663
,101
SIZE
-1,232
,033
-,979
-37,391
CFO
-1,538E9
1,671E9
-,026
-,920
LOSS
-1,350E9
5,209E8
-,073
-2,592
,012*
1,732E9
1,189E9
,039
1,457
,149
-1,068E8
7,605E8
-,004
-,140
,889
LEV
TYPE
a.
Coefficients
Table 5.3 shows that the R square is 0,952. The coefficient of determination, R2,
provides a measure of how well future outcome are likely to be predicted by the
regression model. The explanatory power of the independent variables on the
dependent variable discretionary accruals is thus 95,2%.
23 | P a g e
,000**
,360
The ANOVA test is shown in Table 5.4, this table contains a variance analysis. The
variance analysis is useful for testing the entire models significance and will test its
reliability. The model is significant (Sig. 0,01).
The beta coefficient of the non-audit fee ratio (NARATIO) is 0,043 with a
significance level of 0,101. The coefficient in for non-audit fees is positive but not
significant. The sign of the coefficient is consistent with prior research such as
Frankel et al. (2002) and Ashbaugh et al. (2003) but they also report a significant
coefficient which is in contrast with the results of this research. Of the control
variables, SIZE and LOSS are significant. Both control variables are negatively
associated with discretionary accruals indicating that companies who report a loss are
less likely to contract for more non-audit services and that smaller companies have a
higher non-audit fee ratio.
Table 5.6, 5.7 and 5.8 show the Model summary, ANOVA test and the coefficients of
the regression model with the audit fee metric: NONAUDIT. The absolute value of
the non-audit fee (NONAUDIT) is the other audit fee metric to determine if there is
an association between non-audit fees and earnings management.
Table 5.6
Model Summaryb
Model
R
1
,982
R Square
a
0,965
Adjusted R
Std. Error of
Square
the Estimate
0,962
1,608E9
Table 5.7
ANOVAb
24 | P a g e
The relation between Auditors Fees and Earnings Management in Dutch firms
Model
1
Sum of Squares
df
Mean Square
Regression
5,215E21
8,691E20
Residual
1,888E20
73
2,587E18
Total
5,404E21
79
Sig.
,000a
336,019
Table 5.8
Coefficientsa
Model
Standard
Unstandardized Coefficients
B
Beta
Sig.
(Constant)
1,613E8
1,008E9
NONAUDIT
1585,909
289,214
,190
5,484
,000**
,000**
,190
,850
SIZE
-1,409
,043
-1,120
-32,917
CFO
-3,275E9
1,472E9
-,056
-2,225
,029*
LOSS
-1,389E9
4,465E8
-,075
-3,110
,003**
1,304E9
1,022E9
,029
1,276
,206
-3,644E8
6,522E8
-,0134
-,559
,578
LEV
TYPE
b.
Std. Error
Coefficients
Table 5.6 shows that the R square of this model is 0,965. The explanatory power of
this model is slightly higher than the model previously discussed. Table 5.7 shows the
ANOVA model which is significant at a level of 0,01.
The coefficient of the absolute value of the non-audit fee is positive (0,190) and
significant (significance 0,01). This suggest relation suggest that when non-audit
fees increase the possibility of earnings management also increases. This is consistent
empirical evidence such as the results of the article of Frankel et al. (2002).
Consistent with the results of non-audit fee ratio the relation of LOSS and SIZE are
negative and significant. In addition, the control variable CFO in this model is
significant at a level of 0,05 and there is a negative relation. This result suggest that
companies with high cash flow have increased non-audit services.
25 | P a g e
The result of both fee metric suggest that they are positively related with discretionary
accruals, the indicator of earnings management. Although the fee metric of the nonaudit fee ratio is insignificant, absolute value of non-audit fees is significant.
Following the results H1 is rejected, non-audit fees seem to have a positive
association with earnings management.
R
1
R Square
,982
Adjusted R
Std. Error of
Square
the Estimate
0,962
1,616E9
0,965
Table 5.10
ANOVAb
Model
1
Sum of Squares
df
Mean Square
Regression
5,213E21
8,688E20
Residual
1,907E20
73
2,613E18
Total
5,404E21
79
F
332,502
Table 5.11
Coefficientsa
Model
Standard
Unstandardized Coefficients
26 | P a g e
Coefficients
Sig.
,000a
The relation between Auditors Fees and Earnings Management in Dutch firms
B
1
Beta
Sig.
(Constant)
-5,833E8
8.534E8
AUDIT
-932,075
172,999
-,499
-5,388
,000**
-,628
,116
-,499
-5,424
,000**
CFO
1,330E9
1,519E9
,023
,876
,384
LOSS
-7,704E8
4,600E8
-,042
-1,675
,098
LEV
1,884E9
1,023E9
,042
1,841
,070
TYPE
1,054E8
6,565E8
,004
,160
,873
SIZE
c.
Std. Error
-,683
,496
Table 5.9 shows that the R square of this model is 0,965. The explanatory power of
this model is as high as our previously discussed model with the fee metric
NONAUDIT and it slightly higher than the model with the fee metric NARATIO.
Again the ANOVA model is significant at a level of 0,01 (Table 5.10).
The coefficient of the absolute value of audit fees (AUDIT) is -,499 and is significant
at a level of <0,01 (Table 5.11). This indicates that there is a significant negative
relationship between audit fees and discretionary accruals, the measure for earnings
management. In contrary to the previous results of the fee metric NONAUDIT and
NARATIO, the only control variable that is significant is SIZE. The size of the
company is negatively related to discretionary accruals.
The audit fee results show that there is a significant negative relation between the
absolute value of audit fees and discretionary accruals. We therefore can reject the
null hypothesis H2.
27 | P a g e
nonaudit fees, we therefore test the variable TOTAL to capture the explicit economic
bond between auditors and their clients.
Table 5.12
Model Summaryb
Model
R
1
R Square
,976a
Adjusted R
Std. Error of
Square
the Estimate
0,948
1,879E9
0,952
Table 5.13
ANOVAb
Model
1
Sum of Squares
df
Mean Square
Regression
5,146E21
8,567E20
Residual
2,577E20
73
3,530E18
Total
5,404E21
79
Sig.
,000a
242,982
Table 5.14
Coefficientsa
Model
Standard
Unstandardized Coefficients
B
(Constant)
-3,872E8
9,948E8
TOTAL
Beta
Sig.
-,389
,698
-275,998
173,577
-,174
-1,590
,116
SIZE
-1,023
,136
-,813
-7,522
,000**
CFO
-2,087E9
1,813E9
-,004
-,115
LOSS
-1,144E9
5,328E8
-,062
-2,148
,035*
1,938E9
1,191E9
,044
1,627
,108
-5,321E8
7,642E8
-,002
-,070
,945
LEV
TYPE
d.
Std. Error
Coefficients
28 | P a g e
,909
The relation between Auditors Fees and Earnings Management in Dutch firms
Table 5.12 shows that the R square of this model is 0,976. The explanatory power of
this model is highest compared to the previous results. Again the ANOVA model is
significant at a level of 0,01 (Table 5.13).
The results of the absolute value of total fees (Table 5.14) shows that there is no
significant relation with discretionary accruals. The null hypothesis H3 can be
accepted, the significance of the model is 0,116. The results suggest that combining
the variables audit- and non-audit fees mask the effects of the different incentives.
6.
29 | P a g e
This research investigates the relationship between auditors fees and earnings
management in Dutch listed firms. The following research question is introduced in
the introduction paragraph:
To what extent is there an association between audit fees, non-audit fees and earnings
management of Dutch firms, who classify as large under BW 2 title 9.
To answer this question we developed three hypothesis and determined four audit fee
metrics. The following table shows a summary of the results of the audit fee metrics:
Table 6.1
Summary results audit fee metrics
Fee metric
Demonstrated sign
Significance
Positive
NO
Positive
YES (0,01)
Negative
YES (0,01)
Negative
NO
6.1 Conclusions
Research about the relationship between auditors fees and earnings management has
received a lot of attention is countries such as the UK or the US. Due to a recently
changed law, regarding the disclosure of audit fees, it was made possible to conduct
such a research in the Netherlands as well. The results of previous research regarding
the relationship between non-audit, audit and earnings management has been mixed.
The results of this thesis are congruent with the results of the research of Frankel et al
(2002).
The research identifies different incentives of audit fees and non-audit fees with
regards to discretionary accruals. The findings suggests that there is a positive
relationship between non-audit fees and discretionary accruals. Discretionary accruals
are used in this thesis as the measure of earnings management. The positive
relationship with non-audit fees is both found in the non-audit fee ratio and the
30 | P a g e
The relation between Auditors Fees and Earnings Management in Dutch firms
absolute value of non-audit fees, whereby only the absolute value of non-audit fees is
found to be significant. The findings regards the relationship between audit fees and
earnings management suggests that there is a significant negative relationship. These
results suggest that when an organization has an increase in audit fees it results in a
decrease of earnings management.
Many research have also focused of the joint determination of audit fees and nonaudit fees and their measure to capture the explicit economic bond between the
auditor and its client. The joint determination in this research is the audit fee metric
total audit fees, which is the sum of audit- and non-audit fees. The findings suggest
that there is no significant relation between totals fees and earnings management. This
findings is congruent with the results of the research of Frankel et al. (2002) who
suggest that combining the two variables will masks the effects of the different
incentives.
The research question can now be answered. There is a positive relationship between
non-audit fees and earnings management, whereby there is a negative relationship
between audit fees and earnings management. If we will combine both of the
variables I have found that there is no relationship with earnings management which
support the claim of Frankel et al. (2002) who suggest that audit fees and non-audit
fees have both different incentives and combining the two will only masks their
effects.
6.2 Implications
The conclusion as mentioned above is subject to several implications.
The first implications of this research is the sample size limitation of this study.
Because of the newly available data, data of the year 2008 was only available. Not all
annual reports of 2009 were available at the time of this research which could have
give different results if this year was also included.
Because the year 2008 was the first year in the Netherlands to disclose audit fee data
not all data was disclosed in the same way. NIVRA has published a research on how
well the auditors fees are disclosed in the annual reports of 2008 and indicates that
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the companies disclose the audit fees differently. Some companies disclosed the audit
fee data of all their auditors/advisers of the year 2008, whereas others only disclosed
the audit fee data of their auditor. Some companies didnt disclose their audit fee data
at all, I excluded them from the research. Because the disclosure of the audit fee was
differently for practically each firm our results could be biased.
Another limitation of this study is the fact that earnings management is difficult to
detect as it takes many form. We have only used one form of earnings management is
this study which is discretionary accruals. Thereby it could be possible that the
modified Jones model isnt the best model to detect earnings management in
companies in the Netherlands.
This research does not test branch-specifics. This causes a general conclusion, which
may not apply for each specific branch. It is possible the results of this study would be
different in specific branches and that there will be different relations between
auditors fees and earnings management due to the different environment.
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The relation between Auditors Fees and Earnings Management in Dutch firms
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Formatted: Superscript
7th edition
APPENDIX A
Name company
AALBERTS INDUSTRIES
KONINKLIJKE AHOLD NV
ACCELL GROUP NV
AFC AJAX NV
KONINKLIJKE BRILL NV
ALANHERI NV
KONINKLIJKE KPN NV
AMSTERDAM MOLECULAR
KONINKLIJKE VOPAK NV
ARCADIS NV
LOGICA PLC
36 | P a g e
The relation between Auditors Fees and Earnings Management in Dutch firms
ARSEUS NV
ASM INTERNATIONAL NV
MEDIQ NV
ASML HOLDING NV
BALLAST NEDAM NV
BATENBURG BEHEER
NEDSENSE
BE SEMICONDUCTOR IND
NEWAYS ELECTRONICS
NUTRECO HOLDING NV
BRUNEL INTERNATIONAL
OCTOPLUS
ORANJEWOUD NV
CRUCELL NV
ORDINA NV
PHARMING GROUP NV
CSM N.V.
PUNCH GRAPHIX
CTAC NV
QURIUS N.V.
DOCDATA NV
RANDSTAD HOLDING
DPA GROUP NV
REED ELSEVIER NV
DRAKA HOLDING NV
EXACT HOLDING NV
ROYAL DUTCH/SHELL GR
FORNIX BIOSCIENCES
SBM OFFSHORE NV
FUGRO NV
SIMAC TECHNIEK NV
GALAPAGOS
GAMMA HOLDING NV
GRONTMIJ
STERN GROEP NV
TELEGRAAF MEDIA
HEIJMANS NV
TIE HOLDING NV
HEINEKEN N.V.
HOLLAND COLOURS NV
TNT NV
ICT AUTOMATISERING
TOMTOM N.V.
IMTECH NV
UNILEVER N.V.
INNOCONCEPTS NV
UNIT4 NV
KENDRION NV
WAVIN N.V.
KONINK. WESSANEN
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