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External Auditors, Audit Committees and Earnings Management in France


  • Charles Piot
  • Remi Janin


We investigate the effect of various audit quality dimensions (i.e. auditor reputation and tenure, audit committee existence and independence) on earnings management in France. We thus contribute to the empirical audit quality literature in a Continental European environment that markedly differs from the USA in terms of auditing and corporate governance. The main findings are that: (1) the presence of an audit committee (but not the committee's independence) curbs upward earnings management; and (2) the presence of a Big Five auditor makes no difference regarding earnings management activities. Implications of these findings are discussed with regard to the specificities of the French auditing and governance settings. In particular, although the audit committee acts as a device to control the more egregious (i.e. income-increasing) forms of earnings management, the monitoring incentive of outside directors may be hampered by the collective board responsibility for financial reporting quality. Second, the lack of differentiation among Big Five auditors in terms of accounting conservatism is consistent with the lower litigation risk offered by the French Civil Code (vs. the US Common Law system), which is likely to eliminate the deep pockets incentive for investors.

Suggested Citation

  • Charles Piot & Remi Janin, 2007. "External Auditors, Audit Committees and Earnings Management in France," European Accounting Review, Taylor & Francis Journals, vol. 16(2), pages 429-454.
  • Handle: RePEc:taf:euract:v:16:y:2007:i:2:p:429-454
    DOI: 10.1080/09638180701391030

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    Cited by:

    1. Gaetano Matonti & Giuseppe Iuliano, 2012. "Voluntary Adoption of Ifrs by Italian Private Firms: A Study Of The Determinants," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 2(2), pages 43-70, December.
    2. Gilles David & Nadia Mhirsi, 2011. "Etude exploratoire de la structuration du Co-commissariat aux comptes en France," Post-Print hal-00647593, HAL.
    3. Denis Cormier & Pascale Lapointe-Antunes & Michel Magnan, 2015. "Does corporate governance enhance the appreciation of mandatory environmental disclosure by financial markets?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(4), pages 897-925, November.
    4. repec:eee:accoun:v:52:y:2017:i:3:p:251-261 is not listed on IDEAS
    5. Katsuhiko Muramiya & Tomomi Takada, 2010. "Auditor Conservatism, Abnormal Accruals, and Going Concern Opinions," Discussion Papers 2010-64, Kobe University, Graduate School of Business Administration.
    6. repec:eco:journ1:2018-02-12 is not listed on IDEAS
    7. Anis Mnif, 2009. "Corporate Governance And Management Earnings Forecast Quality: Evidence From French Ipos," Post-Print halshs-00459171, HAL.
    8. Persakis, Anthony & Iatridis, George Emmanuel, 2016. "Audit quality, investor protection and earnings management during the financial crisis of 2008: An international perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 73-101.
    9. Ghribi Rihab & Jarboui Anis, 2016. "Impact of accounting and financial manipulations around mergers and acquisitions on shareholders' perception," Post-Print hal-01371223, HAL.
    10. repec:kap:jmgtgv:v:21:y:2017:i:2:d:10.1007_s10997-016-9347-3 is not listed on IDEAS
    11. repec:taf:oaefxx:v:3:y:2015:i:1:p:1090944 is not listed on IDEAS
    12. Rana Ahmad Baker & Ali Al-Thuneibat, 2011. "Audit tenure and the equity risk premium: evidence from Jordan," International Journal of Accounting and Information Management, Emerald Group Publishing, vol. 19(1), pages 5-23, March.
    13. Iatridis, George Emmanuel, 2012. "Audit quality in common-law and code-law emerging markets: Evidence on earnings conservatism, agency costs and cost of equity," Emerging Markets Review, Elsevier, vol. 13(2), pages 101-117.
    14. Tchakoute Tchuigoua, Hubert, 2015. "Determinants of the governance quality of microfinance institutions," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 32-43.
    15. repec:kap:jbuset:v:142:y:2017:i:2:d:10.1007_s10551-015-2752-8 is not listed on IDEAS
    16. Cédric Lesage & Sabine Ratzinger & Jaana Kettunen, 2012. "Struggle over joint audit: on behalf of public interest?," Post-Print hal-00935004, HAL.
    17. Nicolas Vlaminck & Gerrit Sarens, 2015. "The relationship between audit committee characteristics and financial statement quality: evidence from Belgium," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 145-166, February.
    18. repec:eee:spacre:v:18:y:2015:i:1:p:11-19 is not listed on IDEAS
    19. repec:eee:jiaata:v:30:y:2018:i:c:p:69-84 is not listed on IDEAS
    20. Gilles David & Nadia Mhirsi, 2011. "Etude exploratoire de la structuration du Co-commissariat aux comptes en France," Post-Print halshs-00596547, HAL.
    21. D. Retour & C. Piot, 2008. "L'influence des auditeurs externes et des comités d'audit sur le contenu informatif des manipulations comptables," Post-Print halshs-00450350, HAL.

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