Audit Quality and Earnings Management: Evidence From Turkey

Abstract

A b s t r a c tEarnings management is one of the controversial issues in the current business environment. The value relevance of earnings is adversely influenced by earnings management. The objective of this study is to analyze the association between audit quality and earnings management for non-financial firms quoted on Borsa Istanbul. Ordinary least square regression analysis is employed in this study in analyzing the association between earnings management and audit quality. Three different proxies for audit quality (auditor independence, audit industry specialization and auditor tenure) were analyzed based on a sample of 97 nonfinancial firms quoted on Borsa Istanbul from 2013 to 2018. Empirical analysis indicates that auditor independence and audit industry specialization are significantly negatively related with likelihood of earnings management and long-term auditor and client relationship enables the management of firms to more actively engage in earnings management. This paper finds support for the notion that the high-quality audit is one of the prominent factors that can mitigate earnings management practices.Kazanç yönetimi iş dünyasında en fazla tartışılan konular arasındadır. Kazançların değer ilgililiği kazanç yönetiminden olumsuz olarak etkilenmektedir. Bu çalışmanın amacı, denetim kalitesi ve kazanç yönetimi arasındaki ilişkiyi Borsa İstanbul'a kote olan şirketler açısından analiz etmektir. Denetim kalitesi ve kazanç yönetimi arasındaki ilişki sıradan en küçük kareler yöntemi kullanılarak analiz edilmektedir. 2013-2018 yıllarını kapsayan ve Borsa İstanbul'a kote olan 97 reel sektör firmasının verilerinden yararlanarak denetim kalitesinin üç göstergesi (denetçi bağımsızlığı, denetçinin sektörel uzmanlığı ve denetim firmasının müşteri firmaya hizmet süresi) sıradan en küçük kareler yöntemi kullanılarak analiz edilmektedir. Sıradan en küçük kareler yönteminin sonuçlarına göre; denetçi bağımsızlığı ve denetçinin sektörel uzmanlığı kazanç yönetimini önemli derecede azaltmaktadır ve denetim firması ile müşteri firma arasındaki uzun süreli ilişki, müşteri firmanın daha yoğun bir şekilde kazanç yönetimini uygulamasına yol açmaktadır. Bunlara ek olarak, bağımsız denetiminin kalitesinin yüksek olması firmaların kazanç yönetimi uygulamalarını önemli derecede azaltmaktadır.

Leverage, earnings management and audit industry specialization: the case of Palestinian-listed companies

“…Lopez and Vega (2019) indicate that firms audited by more specialized Certified public accountants (CPAs) tend to have lower degrees of discretionary accruals. Additionally, Ozcan (2019) addresses the association between audit industry specialization and earnings management for a sample of 97 nonfinancial firms listed on Borsa Istanbul, and provides evidence that audit industry specialization significantly and adversely affects earnings management. Consistently, Jayeola et al (2017) identify a negative association between audit industry specialization and earnings management in the context of Nigerian banking sector.…”

Mediating Effect of Audit Committee on the Connection Linking Auditor Attributes and Financial Reporting Quality: A Conceptual Framework

“…Furthermore, the relationship between AAT and FRQ has been investigated in previous studies using a variety of proxies such as auditor independence (Abubakar et al, 2020;Ihsan et al, 2016), established a positive connection amid AI and FRQ, audit fees AF and FRQ (Huang & Hsiao, 2011;Wuchun et al, 2014;Al Dabbous et al, 2015;Al-rassas & Kamardin, 2015;Habbash & Alghamdi, 2016;Kuntari et al, 2017;Reguera-alvarado et al, 2019;Scott, 2020), auditor tenure AT (Jorjani & Gerayeli, 2018;Olufemi & Patrick, 2018;Özcan, 2018;Sarun et al, 2019;Cameran et al, 2020) and joint audit JA (Zerni et al, 2014;Al Dabbous et al, 2015;André et al, 2015;El Assy, 2015;Velte & Azibi, 2015;Haak et al, 2018;Sabah et al, 2019).…”

Investigating earnings management practices and the role of the board and committees in emerging markets: Evidence from Malaysian public companies

“…(2020); Lopes (2018), Surbakti and Shaari (2018); Priharta and Rahayu (2019); it was determined that element of CG mechanisms jointly reduce EM. Furthermore, Özcan (2019) found that CG mechanisms significantly and negatively related with likelihood of EM. These studies documented that the CG mechanisms lower the level of EM.…”