商业研究

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The Supervision Effect of Auditor Industry Expertise on Earnings Management in R&D Activities

CHU You-wei   

  1. (School of Accounting, Dongbei University of Finance and Economics, Dalian 116025, China)
  • Received:2017-09-27 Online:2018-02-22

Abstract: Industry expertise is one of auditors′ core capabilities. Auditors with industry expertise have professional knowledge and experience of the industry, which will help to restrain earnings management of R&D investment. Based on A-share listed companies of China from 2008 to 2014, this paper analyzes the governance role of the auditors with industry expertise on earnings management of R&D investment. The study finds that auditors with industry expertise can help to restrain opportunistic reductions in R&D, and auditor industry expertise also reduces the chance that companies capitalized R&D expenditure which does not meet the criteria, suppressing the earnings management of the choice of accounting policy. Therefore, the external governance effect of auditors with industry expertise plays a positive role in R&D management.

Key words: auditor industry expertise, earnings management, R&D expenditure, capitalization of R&D expenditure