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Client importance and unconditional conservatism in complex accounting estimates

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  • Shaw, Kenneth W.
  • Whitworth, James D.

Abstract

In this paper, we examine the relation between client importance to Big 4 audit firm local offices and unconditional conservatism in complex accounting estimates; specifically, stock option volatility, pension expected asset rates of return, and pension discount rates. Changes in these estimates, which can appear small, can have material financial statement effects, have been used in earnings management schemes, and pose greater audit risk. We find that more important audit clients are associated with the use of more unconditionally conservative accounting estimates. These results are consistent with auditor reputation protection rather than important client economic dependence, and suggest client importance does not impair auditor independence with respect to complex accounting estimates.

Suggested Citation

  • Shaw, Kenneth W. & Whitworth, James D., 2022. "Client importance and unconditional conservatism in complex accounting estimates," Advances in accounting, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:advacc:v:58:y:2022:i:c:s0882611022000347
    DOI: 10.1016/j.adiac.2022.100615
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    More about this item

    Keywords

    Client importance; Unconditional conservatism; Accounting estimates;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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