The Effect Of Audit Quality On Earnings Management
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The Effect Of Audit Quality On Earnings Management
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Author : Connie L. Becker
language : en
Publisher:
Release Date : 1997
The Effect Of Audit Quality On Earnings Management written by Connie L. Becker and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with categories.
This study examines the relation between audit quality and earnings management. Consistent with prior research, we treat audit quality as a dichotomous variable and assume that Big Six auditors are of higher quality than non-Big Six auditors. Earnings management is captured by discretionary accruals that are estimated using a cross-sectional version of the Jones (1991) model. Prior literature suggests that auditors are more likely to object to management's accounting choices that increase earnings (as opposed to decrease earnings) and that auditors are more likely to be sued when they are associated with financial statements that overstate earnings (as compared to understate earnings). Therefore, we hypothesize that clients of non-Big Six auditors report discretionary accruals that increase income relatively more than the discretionary accruals reported by clients of Big Six auditors. This hypothesis is supported by evidence from a sample of 10, 379 Big Six and 2, 179 non-Big Six firm-years. Specifically, clients of non-Big Six auditors report discretionary accruals that are, on average, 1.5 to 2.1 percent of total assets higher than the discretionary accruals reported by clients of Big Six auditors. Also, consistent with earnings management, we find that the mean and median of the absolute value of discretionary accruals are greater for firms with non-Big Six auditors. This also indicates that lower audit quality is associated with more quot;accounting flexibility.quot.
Effects Of Audit Quality On Earnings Management And Cost Of Equity Capital
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Author : Hanwen Chen
language : en
Publisher:
Release Date : 2011
Effects Of Audit Quality On Earnings Management And Cost Of Equity Capital written by Hanwen Chen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.
We examine the effects of audit quality on earnings management and cost of equity capital for two groups of Chinese firms: state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs). The differences in the nature of the ownership, agency relations and bankruptcy risks lead SOEs to have weaker incentives than NSOEs to engage in earnings management. As a result, the effect of audit quality in reducing earnings management will be greater for NSOEs than for SOEs. In addition, investors' pricing of information risk as reflected in the cost of equity capital will be more pronounced for NSOEs than for SOEs with high and low audit quality. We find empirical evidence consistent with these hypotheses. Our findings indicate that (1) while high-quality auditors play a governance role in China, that role is limited to a subset of firms, and (2) even under the same legal jurisdiction, the effects of audit quality (in the form of lower earnings management and cost of equity capital) vary across firms with different ownership structures. Our study extends prior research by focusing on the economic consequences of SOEs' and NSOEs' auditor choices and underscores the importance of controlling for ownership type when conducting audit research.
The Effect Of Audit Quality On Earnings Management In The Post Sox Period
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Author : Shaohong Su
language : en
Publisher:
Release Date : 2010
The Effect Of Audit Quality On Earnings Management In The Post Sox Period written by Shaohong Su and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with Corporations categories.
The Effect Of Audit Firm Specialization On Earnings Management And Quality Of Audit Work
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Author : Mohamed A. Hegazy
language : en
Publisher:
Release Date : 2016
The Effect Of Audit Firm Specialization On Earnings Management And Quality Of Audit Work written by Mohamed A. Hegazy and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This paper aims at investigating the effect of industry specialization on the audit quality and earnings quality. It examines the relation between industry specialization and earnings quality, financial reporting quality, and audit quality. The research posits that industry specialization constrains earnings management. In addition, it hypothesized a positive relationship between industry specialization and financial reporting quality. An experiment was conducted in an audit firm with international affiliation in Egypt to test the research hypotheses. The results indicate that there is no significant difference between industry specialist auditors and non-specialists in constraining earnings management. In addition, findings support that financial reporting quality was significantly higher when specialists conducted the audit. The results provide empirical evidence consistent with the hypothesis that auditor with industry specialization improves audit quality. Finally, industry specialization enables auditors to realize the amendments in auditing standards better than non-specialists.
The Effect Of Audit Quality On The Relationship Between Audit Committee Effectiveness And Financial Reporting Quality
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Author : Johanna Miettinen
language : en
Publisher: University of Vaasa
Release Date : 2008
The Effect Of Audit Quality On The Relationship Between Audit Committee Effectiveness And Financial Reporting Quality written by Johanna Miettinen and has been published by University of Vaasa this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Audit committees categories.
Tiivistelmä: Tilintarkastuksen laadun vaikutus tarkastusvaliokunnan tehokkuuden ja taloudellisen tiedon laadun väliseen suhteeseen.
Audit Quality Determinants And Their Effect On Earnings Management During The Global Financial Crisis
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Author : Abdullah Mohammed Ayedh
language : en
Publisher:
Release Date : 2013
Audit Quality Determinants And Their Effect On Earnings Management During The Global Financial Crisis written by Abdullah Mohammed Ayedh and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Auditing categories.
The early twenty first century witnessed several accounting scandals that culminated in the collapse of many renown large organizations such as Enron and the bankruptcy filing of WorldCom. These scandals cast doubts on the quality of auditing. As part of the efforts of restoring quality of auditing and earnings reporting, several standards, guidelines, and codes have been imposed by International and Malaysian regulatory bodies. However, those regulatory authorities view audit quality as subjective, multi-dimensional, vast and a complex issue (Financial Reporting Council, 2007; International Auditing and Assurance Standard board, 2011; Canadian Public Accountability Board, 2012), which makes it difficult to define and measure. In order to untangle this multi-dimensional and complex issue, this study conducted a systematic review, maps the audit quality literature and came up with an audit quality framework (AQF). AQF is a comprehensive framework with the inclusion of the International Standard on Quality Control 1 (ISQC 1). The AQF is further enhanced by inculcating qualities from an Islamic perspective. The AQF reveals that the outcome of a quality audit should be reflected in the financial reporting quality, which is proxied by diminished earnings management practices. There is strong evidence that earnings management practices during the abnormal time (financial crisis) differed in terms of magnitude and direction (Mohd-Saleh and Ahmed, 2005; Johl et al., 2007; Iatridis and Dimitras, 2013). Hence, whether earnings management practices in the context of Malaysian listed companies really differ during the recent financial crisis needs to be tested before determining whether audit quality determinants are able to alleviate it. Therefore, this study examines earnings management practices during the recent financial crisis and makes a comparison with the pre-crisis period. In addition, this study investigates the effect of different determinants of audit quality on earnings management practices. The hypotheses of this study were developed and examined based on the related literature, both agency and big bath theories. Data were collected from literature, databases, related regulations and standards (audit quality framework), annual reports (audit quality determinants), and the Bloomberg database (earnings management components). The AQF suggests that audit quality determinants can be categorized into two major dimensions of attributes (i.e. proficiency and morality). The proficiency attributes dimension is related to the ability of the auditor to detect the misstatement, whilst the morality attributes dimension is the willingness of the auditor to report the detected misstatement. The Islamic perspective shows that the two main categories of the AQF (proficiency, morality) are not new and are referred to in the Holy Qur'ān as strength and trustworthiness. Furthermore, Islam emphasizes more on the latter. As for the empirical findings of paired-sample T-tests analysis for 1,189 firm-years, it is revealed that there is a significant decrease of positive earnings management and a significant increase in downwards earnings management during the recent global financial crisis (2009; 2008) compared to before crisis period (2006; 2005). These findings confirm that Malaysian managers apply the big bath strategy during the crisis period. However, the magnitude of earnings management of the Malaysian companies in the recent financial crisis was distinctly lower than those of prior studies (Johl et al., 2007; Iatridis and Dimitras, 2013). Considering this difference, the study tests whether audit quality determinants, as used by prior studies, similarly deterred earnings management practices in the recent crisis in Malaysia. The findings of the regression analysis for the 245 Malaysian listed companies revealed that five out of ten audit quality determinants (i.e. audit firm type, auditor industry specialist, board of directors' size, board of directors' independence, and audit committee independence) play a significant role in restricting earnings management practices. Therefore, the study shows that, by analysing the empirical findings and referring back to the AQF, audit quality determinants related to competent monitoring by expert auditors (proficiency attributes) and independent board of directors and audit committee (morality attributes) deter earnings management practices during the recent financial crisis. However, other audit quality determinants seem ineffective under these circumstances.
Effect Of Audit Quality On Earnings Management Of Listed Oil Marketing Companies In Nigeria
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Author : Gabriel M. Tyokoso
language : en
Publisher:
Release Date : 2019
Effect Of Audit Quality On Earnings Management Of Listed Oil Marketing Companies In Nigeria written by Gabriel M. Tyokoso and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This paper examines the effect of audit quality attributes on earnings management of listed oil marketing companies in Nigeria. Secondary data were extracted from nine companies listed on the Nigerian Stock Exchange (NSE) from 2009 to 2014 and analyzed using panel multiple regression technique. The result of Hausman specification test suggests that the fixed effect regression model is most appropriate for the dataset. The result of the fixed effect regression model showed that audit firm size, auditor industry specialization, client importance and audit committee financial expertise are positively associated with earnings management of the firms at 1%, 5%, 1% and 5% level of significance respectively. In contrast, auditor tenure and the interaction between audit committee financial expertise and auditor industry specialization were negatively and significantly associated with earnings management of the firms at 5% level of significance respectively. The paper therefore concludes that audit quality has significant effect on earnings management of listed oil marketing companies in Nigeria. In line with the findings, the paper recommends among others that public companies who hire the services of audit firms in Nigeria should judge audit firms on the basis of performance in prior assignments and not just the size of the audit firm in view of the fact that audit firm size is not associated with less earnings management of Nigerian firms. Also, regulatory authorities such as SEC should come out with a policy that will encourage audit firms in Nigeria to specialize along industry lines of companies listed on the Nigerian Stock Exchange (NSE) to enable effective audit service. Regulatory bodies such as SEC and Financial Reporting Council of Nigeria (FRCN) should also come out with a policy that makes it mandatory for Nigerian companies to publish both audit and non-audit fees paid to their auditors. The disclosure of both fees will enable users of audited financial statements in Nigeria to determine the level of auditor client importance and consequently, the reliance to place on the auditor's report.
Studying The Effect Of Audit Quality On The Earnings Management Activities
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Author : Reem J. Almousawi
language : en
Publisher:
Release Date : 2008
Studying The Effect Of Audit Quality On The Earnings Management Activities written by Reem J. Almousawi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
Audit Quality And Earnings Management In France
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Author : Charles Piot
language : en
Publisher:
Release Date : 2015
Audit Quality And Earnings Management In France written by Charles Piot and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
This paper investigates the effect of audit quality variables on abnormal accruals in the French context. The sample comprises 255 firm-years observations from SBF 120 Index companies (1999-2001). Abnormal accruals are estimated using a Jones cross-sectional Model, as well as a CFO Model (Jones Model controlling for cash flows). They are considered in signed value, as a proxy for accounting conservatism, and in absolute value, as a proxy for the overall earnings management regardless of income-increasing or -decreasing incentives. Multivariate analyses document that: (1) the presence of a Big Five auditor has no effect on the magnitude of abnormal accruals whether considered in signed or absolute value; (2) the presence of an audit committee (but not the committee's independence) is associated with lower signed abnormal accruals, suggesting more conservative accounting earnings; and (3) in contradiction with positive accounting predictions, leverage has a negative effect on signed abnormal accruals. Implications of these findings are discussed in the French setting with respect to, notably, the lower litigation risk of auditors (vs. the US litigation system), the recommendations on audit committees, the duties of corporate directors, and the traditionally significant role of accounting in the protection of debtholders' interests.
The Effect Of Audit Quality On The Earnings Management Activities Dirasat
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Author : Reem J. Al-Mousawi
language : en
Publisher:
Release Date : 2011
The Effect Of Audit Quality On The Earnings Management Activities Dirasat written by Reem J. Al-Mousawi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.