Critique of Quantitative and Qualitative Research: Female Auditors and Accruals Quality - Essay Example

Critique of Quantitative and Qualitative Research: Female Auditors and Accruals Quality This paper investigates the relationship between the quality of accruals and the gender of the audit engagement partner in the firm (Ittonen et al 206). It seeks to determine whether female auditors have any particular influence on the quality of audit reports. Speci?cally, we aim to assess whether and how female auditors affect the quality of ?nancial reporting. Behavioral differences between men and women form the basis of this study. Taking into consideration the presumption that there is the existence of gender-based differences in the process of cognitively processing information, diligence, conservatism, overcon?dence, and risk tolerance, Ittonen et al (206) linked these differences to the quality of audit reports in a firm. Applying samples drawn from Finnish and Swedish NASDAQ OMX-listed firms, alternative panel regressions of abnormal accruals on female auditor variables and firm-specific controls revealed a strong relationship between gender and quality of audit reports. As the study suggests, firms with female audit engagement partners have smaller abnormal accruals. As such, differences in behaviorisms between men and women have significant implications on the quality of auditing and financial reporting Type of Research Since this study combines elements of both qualitative and quantitative research, it therefore is a quasi-quantitative research. Qualitative research is an investigation a well-developed theory, incorporating well-specified variables measurable using quantitative methods. Qualitative research extensively uses data to test hypothesis of the study. This research particularly uses a hypothesis, which the authors sought to test using numerical data. From their hypothesis, external auditors have constantly reported interesting results in organizations whose auditor are either male or female. External auditors’ reports have revealed that organizations with female auditors are of higher quality than those with male auditors. This formed the basis for the research hypothesis, “The client ?rms of female audit engagement partners have higher accruals quality than ?rms audited by male audit partners” Ittonen et al (209), which sought to investigate the relationship between gender and quality. The research empirically tested the quality of accruals quality by estimating the magnitude of abnormal accruals in reported earnings. Based on gender differences exhibited while processing information, diligence, conservatism, and risk tolerance, the research hypothesizes that female auditors constrain the degree of earnings for the management in general. Details of the Research Design Theory identification and evaluation This paper gives an extensive and well-researched review of available literature on psychology and behavioral economics (Ittonen et al 205). Through research, the paper establishes that there exist gender differences in n cognitive information processing, diligence, conservatism, overcon?dence, and risk tolerance, which they link with the auditing process. Theoretically, the paper points out the behavioral differences between men and women formed the hypothesis for this study, which the researchers sought to prove with numerical data obtained from two listed firms, Finnish and Swedish NASDAQ OMX. Theories in existing literature, and ones forming important basis for this study focus on behavioral differences between men and women. While it is hard to influence decisions that women arrive at, it is easy to influence male decisions. As such, the quality of male audited reports in most cases is compromising, compared to that of women. Subsequently, the researchers conducted a study on two firms to establish the relationship between gender and the quality of audited reports. Accordingly, the researchers were able to draw a research hypothesis based on this literature. It substantially used a pool of available literature on decreasing and increasing earnings for the managers in different scenarios. By assessing literature by external auditors, it was evident that in organizations with male auditors, management received increased incomes due to audit reports manipulation. This also contributed to poor quality of audited reports in such organizations. Literature however showed otherwise for women auditors, associating decreasing incomes with high quality audited reports. Research Hypotheses Through extensive research on the available literature, the paper draws a hypothesis that forms the basis for the study. It utilizes theories identified from the literature to come up with research variables. The theory holds that gender-based differences portrayed by cognitive information processing, diligence, conservatism, overcon?dence, and risk tolerance have significant effects on the audit process. Such effects also influence auditors’ judgments and, subsequently influencing the quality of audited ?nancial information in a firm. The paper then draws research hypotheses from these theories. The hypothesis drafted for the study holds that “The client ?rms of female audit engagement partners have higher accruals quality than ?rms audited by male audit partners.” This is the hypothesis researchers sought to test and prove by empirically testing the data obtained from Finnish and Swedish NASDAQ OMX. One of the reasons for the researchers to conduct this study was assessing the quality of accruals buy by making an estimate of the magnitude of the abnormal accruals reported in earnings. The study focuses on the relationship between female audit engagement and partners with the magnitude of abnormal accruals reported and the influence that female auditors have on the abnormal accruals between increasing and decreasing incomes. Due to the gender differences portrayed by men and women in information processing, diligence, conservatism, and risk tolerance, the hypothesis asserts that female auditors have constraining effect on the degree of earnings management. As the study commences, the researchers have a clear expectation, one that seeks to establish a positive connection between low absolute abnormal accruals and client ?rms of female auditors. Arguments raised by the paper, supported by literature points out that there is a high likelihood of auditors disagreeing with their clients on income increasing than income-decreasing ?nancial reporting practices. Auditors face the risk of a higher litigation and reputation that comes from overstated rather than understated earnings. In case the posited gender-based differences inherent in the conservatism and risk-aversion have any significant influence on the level of risk in gender-based judgments, then, firms with female auditors have lower discrepancies emanating from income-increasing abnormal accruals than those with male auditors. Further, the relationship between female audit engagement partners and abnormal accruals focusing at decreasing incomes could be either positive or negative. Basing their hypothesis on the reduced level of tolerance of women towards income decreasing abnormal accruals, the research hoped to find decreasing income abnormal accruals in firms with female auditors, basing their low tolerance toward earnings management. The authors are keen not to make any prediction on the influence that female auditors have on income decreasing abnormal accruals. This is because of the existence of ambiguity in the theoretical relationship between income-decreasing earnings management and female audit engagement partners (Ittonen et al. 210). Research Method Used In the Study The study used empirical data obtained from Finnish and Swedish client firms listed in the NASDAQ OMX Nordic exchange during the year 2007. Samples of the obtained data cover fiscal years 2005 to 2007. Authors of the paper used 770-firms operations to conduct the study. They manually collected names of audit engagement partners from the audit reports of these firms. This was made possible by the requirement necessitating all firms listed in the NASDAQ OMX Nordic exchange to provide an audit report bearing the signature of an audit engagement partner, whether the firm is appointed or not (Ittonen et al. 215). Reviewing the name of auditors in the audit report made it possible to determine the gander of the engaged audit partner. This is the criteria used by the researchers in arriving at the firms for inclusion in the study. With the engagement auditor’s name available in the audited reports, institutional settings in Finland and Sweden provides an environment to study whether there is any effect of gender on the quality of the audit reports. The researchers used the advantage of the similarity between the legal environments, and the listing requirements on corporate governance, ?nancial reporting, and auditing between Finnish and Swedish ?rms listed on the NASDAQ OMX Nordic exchange, analyzing them as a group. Despite the grouping however, there was the consideration of the differences in the ownership structures of firms in the two countries, with Swedish firms registering a higher percentage of family ownership and low state ownership. However, this did not have any significant influence on the activities of the auditors. Even if the ownership structure could have had any potential influence, the reality, according to assertions made by the literature on behaviorisms remains constant; women’s decisions are less prone to influence. Method Used To Identify Research Results The research used empirical analysis models developed by various researchers in the past to achieve research results. The two empirical analysis models, applied in previous studies formed the basis for the research, included a modified version by Jones and another by Dechow and Dichev (Ittonen et al. 214). These models follow particular individual analytical procedures to estimate the quality of the accruals. Although the research significantly relied on the models to estimate the quality of accruals, there was a lower margin of error in the results. Logic Used To Draw Conclusions The researchers, through the application of two empirical analysis models, obtained data that supported the argument that there is a relationship between gender and the quality of accruals in audit reports. Particularly, results suggested that in firms with female audit clients, audited reports are of high quality than those of men. Results from the empirical analysis models identified four alternative regressions, all portraying abnormal accruals, i.e. (AAJON or AADD) and different female auditor variables (FAUDITOR or FRATIO). All models had the same control variable. Abnormal accruals, formulated from Jones’ model showed dependent variables. However, there is a negative coefficient for the female auditor variables in both regressions, though they are very signi?cant in Model 2 with FRATIO (Ittonen et al 215). These estimates significantly provide essential support the authors’ hypothesis that client firms with female auditors have better audit accruals quality. Although the method used in arriving at the conclusions rely on a number of assumptions, every research uses assumptions in arriving at the results. However, abnormal accruals used in the empirical analysis could have suffered from measurement errors, therefore failing to provide perfect estimates of the extent of earnings management. Considering the reliability of the research, it is correct to argue that conclusions drawn from the study have a measurable base, qualifying the study as scientific. Writing Quality Coherent Organization The authors have organized their ideas and arguments in a logic and coherent manner. It is easy to follow their research procedure from the initial step, i.e. the introduction to the conclusion. However, they could have used a better way of presenting their data, as the figures are rather confusing while calculations are too tight, hence strenuous. Conciseness The use of limited use of words in presentation of the ideas makes the research concise and clear. Researchers have effectively communicated their ideas in a short and direct way, making them easy to understand. Clarity There is economical use of ambiguous terms and complex sentence structures in the study. However, the presentation of the statistics and the statistical analysis process require more elaboration, especially to individuals not used to the empirical analysis models used. Use of Standard English While presenting the ideas, the researchers use proper and standard English, with minimal grammar errors. Appropriateness for the Target Audience American Accounting Association is the publishers for this article. They form a good target audience, as American auditors have access to the information contained in this article. Research Report Format There is the absence of a title page and table of contents in this paper, none of which are necessary in a published journal. However, in the transition from the second page to the third, there is a confusion of page numbering and the “running head.” The page numbers should have been ion the right, and the running head as a header on the left. The paper has all the essential parts, from the introduction, which gives an idea of what the article is about, it also has a background and hypothesis section, broken down into external auditors and financial reporting quality, gender effects, hypothesis. The next section is on data environment, showing the firms used in the research. Methodology defines the research method used to achieve the results. The empirical findings report on the findings from the study inform of tables and finally a conclusion section, summarizing the findings of the research. Summary Statement Validity Contents of the paper are valid, especially the connection between women and high quality audit accruals. Concerned parties and individuals can use this information in the decision making process and in appointing external auditors. Freedom from bias Due to the factual representation of data in numerical form, as well as the use of real data from listed organizations, a reader should have no biasness when reading it. Variable isolation The study well states the variables used in the study. Appropriate inferential logic Application of two empirical analysis models shows the use of inferential logic by the authors. In conclusion, the overall quality of this research article portrays high quality reporting style and meets the standard research paper criteria. Works Cited Ittonen, Kim, Emilia Vahamaa, and Sami Vahamaa. "Female Auditors And Accruals Quality." Accounting Horizons 27.2 (2013): 205-228. Read More