ors investigated auditors’ positions regarding proposed changes in accounting standards that would increase client firms’ reported earnings. It was hypothesized that auditors would favor such proposed changes because their clients' managers would receive higher compensation (salary, bonuses, and so on) when client earnings were reported to be higher. Table (below) summarizes auditor positions regarding proposed changes in accounting standards that would decrease client firms’ reported earnings. Large Firms Small Firms Total In Favor 27 152 179 Opposed 29 154 183 Total 56 306 362
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In a 1993 article in Accounting and Business Research, Meier, Alam, and Pearson studied auditor lobbying on several proposed U.S. accounting standards that affect banks and savings and loan associations. As part of this study, the authors investigated auditors’ positions regarding proposed changes in accounting standards that would increase client firms’ reported earnings. It was hypothesized that auditors would favor such proposed changes because their clients' managers would receive higher compensation (salary, bonuses, and so on) when client earnings were reported to be higher. Table (below) summarizes auditor positions regarding proposed changes in accounting standards that would decrease client firms’ reported earnings. |
| Large Firms |
Small Firms |
Total | |
| In Favor | 27 | 152 | 179 |
| Opposed | 29 | 154 | 183 |
| Total | 56 | 306 | 362 |
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Determine whether the relationship between auditor position and the size of the client firm is the same for earnings-decreasing changes in accounting standards as it is for earnings-increasing changes in accounting standards. Use α = 0.05. (Round your expected frequencies to 2 decimal places. Round your answer to 3 decimal places.) |
| χ2 = |
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