The role of Big 6 auditors in the credible reporting of accruals

This study investigates if the use of a Big 6 auditor is increasing in the firm's endogenous propensity to generate accruals. High-accrual firms have greater scope for aggressive and/or opportunistic earnings management and t herefore have an incentive to hire a Big 6 auditor to provide assurance tha t reported earnings are credible, For a large sample of NASDAQ firms over t he period 1975-1994 we find that the likelihood of using a Big 6 auditor is increasing in firms' endogenous propensity for accruals. Even though Big-6 -audited firms have higher levels of total accruals, we also find they have lower amounts of estimated discretionary accruals. This finding is consist ent with Big 6 auditors constraining aggressive and potentially opportunist ic reporting of accruals.