Table V The effect of audit on earnings...

Table V

The effect of audit on earnings quality for small and micro companies

		Small companies		Micro companies
Year	Variable	Audited accounts	Non-audited accounts	Audited accounts	Non-audited accounts
All Years	No. of firm-years	75,976	180,586	72,111	145,536
	V(ΔNI)	0.0996	0.1193	0.1692	0.1715
	Mean, SD of bootstrap distribn	(0.1067, 2.63E-04)	(0.1154, 1.59E-04)	(0.1691, 3.67E-04)	(0.1714, 2.70E-04)
	V(ΔNI)/V(ΔCF)	0.2472	0.2491	0.2278	0.2211
	Mean, SD of bootstrap distribn	(0.2507, 8.68E-04)	(0.2478, 5.16E-04)	(0.2279, 7.53E-04)	(0.2211, 4.85E-04)
2006	No. of firms	17,245	16,842	18,209	20,272
	V(ΔNI)/V(ΔCF)	0.2527	0.2429	0.2364	0.2278
2007	No. of firms	16,706	16,936	18,587	20,806
	V(ΔNI)/V(ΔCF)	0.2464	0.2566	0.2331	0.2252
2008	No. of firms	15,654	17,291	19,136	20,989
	V(ΔNI)/V(ΔCF)	0.2490	0.2433	0.2280	0.2254
2009	No. of firms	13,047	18,998	13,304	20,210
	V(ΔNI)/V(ΔCF)	0.2456	0.2520	0.2127	0.2062
2010	No. of firms	3,835	27,827	941	17,173
	V(ΔNI)/V(ΔCF)	0.2353	0.2504	0.2204	0.2196
2011	No. of firms	3,370	27,571	728	18,958
	V(ΔNI)/V(ΔCF)	0.2170	0.2475	0.2611	0.2257
2012	No. of firms	3,212	27,486	627	14,708
	V(ΔNI)/V(ΔCF)	0.1897	0.2501	0.2744	0.2317
2013	No. of firms	2,907	27,635	579	12,420
	V(ΔNI)/V(ΔCF)	0.2293	0.2463	0.3470	0.2203

		Small companies		Micro companies
Year	Variable	Audited accounts	Non-audited accounts	Audited accounts	Non-audited accounts
All Years	No. of firm-years	75,976	180,586	72,111	145,536
	V(ΔNI)	0.0996	0.1193	0.1692	0.1715
	Mean, SD of bootstrap distribn	(0.1067, 2.63E-04)	(0.1154, 1.59E-04)	(0.1691, 3.67E-04)	(0.1714, 2.70E-04)
	V(ΔNI)/V(ΔCF)	0.2472	0.2491	0.2278	0.2211
	Mean, SD of bootstrap distribn	(0.2507, 8.68E-04)	(0.2478, 5.16E-04)	(0.2279, 7.53E-04)	(0.2211, 4.85E-04)
2006	No. of firms	17,245	16,842	18,209	20,272
	V(ΔNI)/V(ΔCF)	0.2527	0.2429	0.2364	0.2278
2007	No. of firms	16,706	16,936	18,587	20,806
	V(ΔNI)/V(ΔCF)	0.2464	0.2566	0.2331	0.2252
2008	No. of firms	15,654	17,291	19,136	20,989
	V(ΔNI)/V(ΔCF)	0.2490	0.2433	0.2280	0.2254
2009	No. of firms	13,047	18,998	13,304	20,210
	V(ΔNI)/V(ΔCF)	0.2456	0.2520	0.2127	0.2062
2010	No. of firms	3,835	27,827	941	17,173
	V(ΔNI)/V(ΔCF)	0.2353	0.2504	0.2204	0.2196
2011	No. of firms	3,370	27,571	728	18,958
	V(ΔNI)/V(ΔCF)	0.2170	0.2475	0.2611	0.2257
2012	No. of firms	3,212	27,486	627	14,708
	V(ΔNI)/V(ΔCF)	0.1897	0.2501	0.2744	0.2317
2013	No. of firms	2,907	27,635	579	12,420
	V(ΔNI)/V(ΔCF)	0.2293	0.2463	0.3470	0.2203

Notes: V(ΔNI) is the variability of earnings, which is measured by the variance of the residuals from Equations (1) and (4) to capture the smoothness of earnings; V(ΔNI)/V(ΔCF) is the ratio of variability of earnings to the variability of cash flows from operating activities, where the variability of earnings is measured by the variance of the residuals from Equations (1) and (4), and the variability of cash flows is measured by the variance of the residuals from Equations (2) and (5). This ratio is to capture the smoothness of earnings related to the smoothness of cash flows. We report, in parenthesis, the means and standard deviations of the bootstrapped variance of residuals [V(ΔNI)] and the ratio [V(ΔNI)/V(ΔCF)]. The standard deviation of the bootstrap distribution is our estimate of the standard error of the test statistic which approximates to a normal distribution. All variables are measured during the sample period, 2006-2013

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