The purpose of the paper is to determine the impact of the voluntary adoption of the joint external audit approach in reducing earnings management practices through accruals and real operations compared with the adoption of the dual external audit approach. The research follows a quantitative approach to collect and analyze data from companies listed on the Egyptian Stock Exchange during the period 2010-2014. 104 firm-year observations are tested in the sample. The findings of the empirical study shows evidence that there are consistent earnings management practices in the studied sample regardless of the type of audit (joint or dual). There is a negative association between joint audit and discretionary accruals compared to dual audit. This means that firms with joint audit are less engaged in accrual earnings management practices. In addition, large firms that adopt joint audit are less engaged in accrual earnings management. However, there is no effect of joint audit on real earnings management practices compared to dual audit. Our results are consistent for firm size, profitability and leverage. Both firm profitability and leverage show positive association with earnings management practices while size did not have a significant effect on either type of practice. Finally, we find that firms with high (low) profitability that adopt joint audits are less (more) likely to engage in real earnings management practices. Our results are of use to regulators, external auditors and investors.

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This study seeks to investigate whether the cost of goods sold (COGS) behaves asymmetric to change in sales, and examines the effect of financial risk on asymmetric cost behavior of COGS in the Egyptian manufacturing firms. The financial data of this study were collected from the published annual reports for a sample of 65 Egyptian listed manufacturing firms during the period (2006-2015) with total observations 530 firm-year. The analysis of this paper is based on Anderson et al.’s (2003) cost stickiness model. The findings indicate that the COGS is sticky to change in sales, it rises more when sales increase than when it falls for equivalent sales decrease and the degree of cost stickiness increases with a firm’s financial risk. This study is the first attempt to examine the direct effect of financial risk on the COGS behavior using Altman Z-score model as a proxy for financial risk, which may affect the accuracy of the results. By focusing on this proxy, the study identifies a significant relationship, which was not adequately addressed in previous studies. Therefore, this study extends the cost behavior literature by examining the impact of financial risk on managers' decisions to amend the resources.