Wpływ rewizji finansowej na kształtowanie zysków w celu unikania ujawniania strat
The impact of auditing on earnings management to avoid losses

Summary/Abstract: The aim of the paper was to detect if earnings management to avoid losses in Polish public companies can be confined by auditing of financial statement. The data consist of nonrandom sample of Polish companies listed on Warsaw Stock Exchange and regulated off-exchange market (CeTO). Banks, insurance companies, NFI and companies rendering financial services were excluded from the sample. The study includes all available cross-sectional data from the Notoria databases for the years 1998–2004. Every company-year came into the sample with the pair of unaudited and audited financial statements prepared in conformity with Polish Accounting Act. Discontinuities in the distribution of reported earnings around the threshold – zero value of net income – together with the lack of discontinuity of the distribution of cash flows from operations indicate earnings management by the exercise of management discretion. Auditors are generally not able to confine such type of earnings management when conducting the audits because their task is to identify material misstatements, while managerial discretion is usually the natural part of, to some extent aggressive, accounting policy.

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