Audit quality and earnings management: evidence from Jordan

Abstract

Purpose – The purpose of this paper is to test the association between audit quality and earnings management (EM). Audit quality studies documented that accruals would reduce when the auditor is independent or the audit firm is large. Design/methodology/approach – This paper uses generalised least square regression to investigate the influence of audit quality on EM. The sample contained 86 companies listed on the Amman Stock Exchange from 2007 to 2010. The cross-sectional modified Jones model was employed to measure discretionary accruals as a proxy for EM. Findings – This paper revealed that there is a significantly negative association between audit quality and EM. The result inferred that EM level is significantly lower among companies using the services of independent auditors. Moreover, this study exposed that the level of EM is significantly less among companies hiring a Big 4 audit firm, as compared to companies utilising the service of a non-Big 4 audit firm. Research limitations/implications – The measurement error, which is a rigorous concern for studies on EM, is one of the limitations in this study. Hence, the current study wholly inherited the limits of the modified Jones model. Practical implications – The findings based on the current study would provide beneficial information for regulators in Jordan and other countries with an institutional environment similar to that of Jordan. Moreover, the results provided valuable information to investors in assessing the influence of audit quality on financial reporting quality (FRQ). Originality/value – The current study contributed to auditing and corporate governance literature and its influence on EM among Jordanian companies. This research will be of value to companies seeking to reduce EM and enhance FRQ.

Os Principais Assuntos de Auditoria Importam? Uma análise de sua associação com o Gerenciamento de Resultados

“…O gerenciamento de resultados, apesar de ter inúmeras definições com diferentes abrangências, consiste, em linhas gerais, na utilização de escolhas contábeis e operacionais por parte dos gestores, a fim de atender a resultados específicos (da firma ou dos próprios agentes). Tais escolhas podem prejudicar a tomada de decisões por parte de stakeholders em função da falsa percepção da situação econômica da entidade, ou, até mesmo, influenciar resultados contratuais que dependem dos números contábeis (Alzoubi, 2016).…”

“…Quanto ao resultado do Retorno sobre os Ativos, verificou-se que empresas com maiores ROAs são propensas a apresentar menor gerenciamento de resultados por accruals. Além disso, verificou-se um efeito negativo entre a variável de Estrutura de Propriedade e o gerenciamento por accruals, que pode ser explicado, de acordo com Alzoubi (2016), pelo fato de que empresas com maiores concentrações de propriedade tendem ao maior monitoramento por acionistas minoritários e órgãos reguladores. Por outro lado, observa-se que as maiores empresas apresentam maiores níveis de discricionariedade do FCO.…”

The Effect Of Audit Quality And Earnings Management On Firm Performance

“…Second, the study was conducted by Ardiana (2014), results showed that audit tenure negatively affect the value of the company. Third, sayyar et al (2015) concluded that the quality of audits by proxy audit fee and audit firm rotation does not significantly affect the performance of the company This study, investigation of influence audit quality and earnings management on firm performance, which is the development of the two studies is research Alzoubi (2016) who studied the effect of audit quality on earnings management and research Farouk and Hassan (2014) on the effect of audit quality on the financial performance of the company. Differences of this study with previous research is located on the addition of variables used are the first, the company's performance dependent variable using proxies Tobin's Q, based on research conducted by Huang et al (2009).…”

“…The empirical evidence regarding the effect of audit quality on earnings management have varying results. Alzoubi (2016) examined the effect of audit quality on earnings management, the study showed that the quality audit negatively affect earnings management activities using proxy Discretionary Accrual (DA). Research on the effect of audit quality on earnings management has been studied previously by Indriani (2010) in Indonesia.…”

The Role of Firm Ownership Type and Earnings Management on Auditor Choice and Audit Fee of Non-Financial Firms

“…Earnings management is manager's choice of accounting policies or actions that affect earnings to achieve some specific reported earnings objective [40]. In addition, Setiawati and Na'im stated that earnings management is management's intervention at financial reporting process for their own benefit [41].…”