Abstract

Although it is possible to expect that a negative relationship exists between accrual－based earnings management(hereinafter, AEM) and real earnings management(hereinafter, REM), an empirical study supporting this expectation is still difficult to find. This may be because the firm in need of larger earnings management has both larger AEM and larger REM, and so there exists a positive relationship between AEM and REM. If it is so, this suggests that measuring the magnitude of the REM would be helpful in performing appropriate and sufficient auditing. In addition, many prior studies on auditor－provided tax services(hereinafter, ATS) suggest that ATS may help to assess whether and to what extent a firm has made REM. Based on the above mentioned points, this study conducted an empirical study for the Korean listed companies on whether there is a positive relationship between AEM and REM, and ATS mitigates this positive relationship to have a negative moderating effect. Test results show that there is a positive relationship between AEM and REM, and ATS has a negative moderating effect. And this finding is significant in case the ATS fee is high, but not in case the ATS fee is low. These results suggest that ATS may help in assessing whether and how large a firm has engaged in REM, to have a positive effect of improving the audit quality. In addition, this study is thought to make an academic contribution by expanding the existing research regarding the relationship between AEM and REM in terms of the effects of ATS.

Keywords

• Auditor－Provided Tax Services
• Accrual－based Earnings Management
• Real Earnings Management
• Knowledge Spillover Effect
• Fee of Tax Services

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