Auditors Influence On Earnings Management: Evidence From The Alternative Minimum Tax

Abstract

New alternative minimum tax provisions in 1986 gave managers a strong incentive to choose income decreasing accruals to lower financial net income and tax liability. This study of seventy-two stock life insurance firms from 1984 to 1989 shows that income decreasing discretionary accruals differs significantly across companies audited by (then) Big Eight audit firms, and the firms with the greatest market share appear to allow great client discretion in determining accruals.