The Characteristics of firms subject to adverse rulings by the Financial Reporting Review Pane
Monitoring Earnings Management from Financial Statements ‘The Characteristics of firms subject to adverse rulings by the Financial Reporting Review Panel’,
Peasnell, Pope and Young, 2001, Accounting and
Business Research, Vol 31, pp291-311. Introduction The agency responsible for enforcing accounting standards in the UK is the Financial Reporting
Review Panel (FRRP). It is responsible for reviewing departures from the accounting requirements of the Companies Act and forcing remedial action when the financial statements are defective from earnings management. The FRRP began its operations in the UK in 1991. Monitoring Earnings Manipulation a) Boards: A key function of the board is to monitor management. Conyon and Peck (1998) for the UK present evidence consistent with the view that larger boards are less effective monitors of management. Outside directors are key agents in monitoring management (Fama and Jensen, 1983). They therefore predict that
FRRP firms are more likely to have larger boards and a lower proportion of outside directors. b) Ownership: Agency problems are most acute when managers have a low ownership stake in the business (Jensen and Meckling, 1976;
Black, 1992). They predict that FRRP firms will exhibit lower managerial equity ownership.
c) Auditing: The function of the auditor is to report on whether published financial statements present a true and fair view. Other things being equal, good auditors cost more (Craswell et al 1995).
They therefore predict that FRRP firms are less likely to have a Big Five auditor and are more likely to pay lower audit fees. Research Design Their research design compares FRRP firms with non FRRP firms.
With respect to industry general engineering and chain stores dominate. In terms of years 1991, 1992, 1994 and 1995 dominate.
In order to obtain a direct comparison of FRRP, they compare the FRRP firms with other control
Peasnell, Pope and Young, 2001, Accounting and
Business Research, Vol 31, pp291-311. Introduction The agency responsible for enforcing accounting standards in the UK is the Financial Reporting
Review Panel (FRRP). It is responsible for reviewing departures from the accounting requirements of the Companies Act and forcing remedial action when the financial statements are defective from earnings management. The FRRP began its operations in the UK in 1991. Monitoring Earnings Manipulation a) Boards: A key function of the board is to monitor management. Conyon and Peck (1998) for the UK present evidence consistent with the view that larger boards are less effective monitors of management. Outside directors are key agents in monitoring management (Fama and Jensen, 1983). They therefore predict that
FRRP firms are more likely to have larger boards and a lower proportion of outside directors. b) Ownership: Agency problems are most acute when managers have a low ownership stake in the business (Jensen and Meckling, 1976;
Black, 1992). They predict that FRRP firms will exhibit lower managerial equity ownership.
c) Auditing: The function of the auditor is to report on whether published financial statements present a true and fair view. Other things being equal, good auditors cost more (Craswell et al 1995).
They therefore predict that FRRP firms are less likely to have a Big Five auditor and are more likely to pay lower audit fees. Research Design Their research design compares FRRP firms with non FRRP firms.
With respect to industry general engineering and chain stores dominate. In terms of years 1991, 1992, 1994 and 1995 dominate.
In order to obtain a direct comparison of FRRP, they compare the FRRP firms with other control