The relationship between managerial ability, earnings management and internal control quality on audit fees in Iran

2019 ◽  
Vol 69 (4) ◽  
pp. 685-703 ◽  
Author(s):  
Mahdi Salehi ◽  
Mahmoud Mousavi Shiri ◽  
Seyedeh Zahra Hossini
Keyword(s):  
Earnings Management ◽  
Internal Control ◽  
Significant Relationship ◽  
Stock Exchange ◽  
Audit Fees ◽  
Real Earnings Management ◽  
Managerial Ability ◽  
Content Type ◽  
Control Quality ◽  
The Relationship

Purpose The purpose of this paper is to emphasize the relationship between managerial ability, earnings management, internal control quality and audit fees to establish whether or not there is a significant relationship between the variables of managerial ability, earnings management, internal control quality and the audit fees. Design/methodology/approach The study sample includes 190 listed companies on the Tehran Stock Exchange during 2009–2016. Research hypotheses were tested using the statistical methods of multivariable linear regression and data envelopment analysis pattern. Findings The obtained results indicate that there is a significant and direct relationship between managerial ability and internal control quality as well as real earnings management and internal control quality. Based on the results obtained from the second hypothesis, the authors could claim that there is an inverse and significant relationship managerial ability and audit fees. The third hypothesis also revealed that in companies with lower audit fees, there is a stronger relationship between managerial ability and internal control quality. The results of related tests show no significant relationship between accrual-based earnings management and internal control quality. Originality/value This paper is the first study in Iran whose main focus is on the relationship between managerial ability, earnings management, internal control quality and audit fees.

Audit quality and real earnings management: evidence from the UK manufacturing sector

2019 ◽  
Vol 16 (2) ◽  
pp. 165-181
Author(s):  
R.P. Sitanggang ◽  
Yusuf Karbhari ◽  
Bolaji Tunde Matemilola ◽  
M. Ariff
Keyword(s):  
Earnings Management ◽  
Significant Relationship ◽  
Firm Value ◽  
Management Practices ◽  
Audit Quality ◽  
Audit Fees ◽  
Production Costs ◽  
Real Earnings Management ◽  
Content Type ◽  
The Uk

Purpose The purpose of this paper is to investigate whether audit quality is associated with real earnings management in the UK. Design/methodology/approach The authors apply the panel fixed effects method that controls for heterogeneity across firms to investigate whether audit quality is related to real earnings management for a large sample of UK manufacturing companies for the period 2010–2013. The authors utilized three proxies to measure real earnings management and two proxies to measure audit quality. Findings The results provide evidence that audit fees are negatively related to abnormal operating cash flows. Conversely, audit fees are positively related to abnormal discretionary expenses. Besides, audit quality proxies show insignificant relationship with abnormal production costs and real earnings management index. Overall, the study finds partial evidence of significant relationship between audit quality and real earnings management. Research limitations/implications These results are important subject to the adequacy of the indicators of real earnings management and audit quality. Like previous research works that mostly focus on upward earnings management, the authors do not address the question of whether and how firms take real actions to manage earnings downwards in certain contexts. Practical implications The findings inform monitoring bodies that the imposition of higher levels of audit quality may result in unintended consequences. Therefore, monitoring bodies, such as audit committees, should consider the implication of imposing higher quality auditing, which may drive firms to potentially value-decreasing real earnings management practices. Managers should curtail real earnings management practices, especially abnormal operating cash flow, because attempt to use higher-quality auditors to mitigate such practice may destroy firm value. Also, managers’ employment may be threatened due to the potential deterioration of firm value caused by using higher-quality auditors to mitigate managers’ real earnings management practices. Moreover, shareholders are informed of the potential detrimental effects of imposing higher levels of audit quality which may lower the value of their investments. Originality/value The paper extends previous research on earnings management in several ways. First, while earlier studies usually use accruals methods to measure earnings management, the authors use the real earnings management approach as managers can switch from accruals to real earnings management when facing more scrutiny from auditors and/or more constrained regulations or standards that may limit their capability to use discretionary accruals. Second, this study reports new findings, as the authors find partial evidence of a significant relationship between audit quality and real earnings management. Third, it is one of the few studies to use a real earnings management index to measure earnings management and its link to audit quality.

Relationship between earnings management, CEO compensation, and stock return on Tehran Stock Exchange

2019 ◽  
Vol 23 (1) ◽  
pp. 1-22
Author(s):  
Mahdi Moardi ◽  
Mahdi Salehi ◽  
Simin Poursasan ◽  
Homa Molavi
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Significant Relationship ◽  
Stock Return ◽  
Stock Exchange ◽  
Discretionary Accruals ◽  
Content Type ◽  
Future Cash Flow ◽  
Accruals Quality ◽  
The Relationship

Purpose The purpose of this paper is to investigate the relationship between earnings management and chief executive officers’ (CEOs) compensation. Owing to the fact that earnings management does not have only opportunistic effects, but signaling effects, this study focuses on accruals quality to examine earnings management incentives. Thus, accruals quality is described against future cash flow. The empirical evidences suggest that a positive relationship between discretionary accruals and future cash flow provides predictive elements for earnings management, whereas a negative relationship between discretionary accruals and future cash implies to opportunistic elements for earnings management. Should there is no significant relationship between discretionary accruals and future cash flow, there will be no earnings management, and such a result suggests that incentives and managers’ performance in these firms differ. Design/methodology/approach The statistical population of this research consists of all listed companies on the Tehran Stock Exchange during 2009–2016. Panel data method is applied in order to estimate the research model. Findings Findings of the study show that there is no significant relationship between discretionary accruals and future cash flow in pharmaceutical and food industries, thus they have neither predictive nor opportunist earnings management, while the results evidence a negative significant relationship between discretionary accruals and future cash flow in machineries, automobile, mineral and chemical industries. Furthermore, it can be alleged that there is no significant difference between CEOs’ compensation in firms with opportunistic earnings management (OEM) and other types of earnings management. It shows that firms do not have appropriate plans for CEOs’ compensation. Moreover, the relationship between earnings management and stock return has been investigated in this study. We document that stock return is influenced by accruals quality and its components. In other words, stock return significantly differs in firms with OEM and firms without any kind of earnings management. Research limitations/implications The authors’ findings provide contributions; for managers, it is noticeable that stock markets have sufficient comprehension about financial statements and the undertaken procedures on them, resulting in a higher return base on fair information. For investors and regulators, using the findings, may have deeper understanding to distinguish between industries that are recognized as opportunistic and non-opportunistic, which, in turn, results in better decision and regulation. Originality/value Previous studies have been mostly investigated OEM, while the current study examines both signaling and opportunistic aspects of earnings management.

The relationship between auditor characteristics and fraud detection

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jalil Khaksar ◽  
Mahdi Salehi ◽  
Mahmoud Lari DashtBayaz
Keyword(s):  
Multiple Regression ◽  
Significant Relationship ◽  
Stock Exchange ◽  
Fraud Detection ◽  
Financial Statements ◽  
Audit Fees ◽  
Multiple Regression Model ◽  
Content Type ◽  
The Relationship ◽  
Auditor Characteristics

Purpose This paper aims to analyze the relationship between the following auditor's characteristics with detecting frauds in the listed companies on the Tehran Stock Exchange. Design/methodology/approach A multiple regression model is used to test the research hypothesis. The hypothesis was further tested with a sample of 187 companies listed on the Tehran Stock Exchange (1,309 observations) from 2012 to 2018 and by using multiple regression models based on panel data and the random-effects model. Findings The results suggest a positive and significant relationship between audit firms' size, auditor rotation, specialization in the industry, the audit market's focus, auditor's independence, audit report lag and renewal of financial statements with fraud detection. The results revealed a significant relationship between the period of auditor tenure, auditor's narcissism, audit fees and the type of auditors' opinion (un-qualified opinion) with fraud detection. Originality/value As the present study is a pioneer in examining this issue in the emerging markets, it provides users, analysts and legal entities with useful information about auditor characteristics that significantly affect the fraud detection of financial statements. The results mitigate the literature gap and improve knowledge in this area.

Crime rate, real earnings management and managerial ability

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alex Johanes Simamora
Keyword(s):  
Earnings Management ◽  
Crime Rate ◽  
Stock Exchange ◽  
Efficiency Score ◽  
Real Earnings Management ◽  
Data Envelopment ◽  
Managerial Ability ◽  
Content Type ◽  
Effect Regression ◽  
Lower Crime Rate

Purpose This paper aims to examine the effect of managerial ability (MA) on real earnings management and the effect of real earnings management by higher ability managers on future profitability, at a different level of the crime rate. Design/methodology/approach The research sample includes 864 manufacturing firms-years listed on the Indonesian Stock Exchange. MA uses an efficiency score by data envelopment analysis. Real earnings management is measured by abnormal activities. The crime rate is measured by logarithm natural of the number of crimes per 100.000 citizens in the region where the firm is headquartered. Data analysis uses fixed-effect regression. Findings MA increases real earnings management in the region where the firm is headquartered with a higher crime rate while MA will reduce real earnings management in the region where the firm is headquartered with a lower crime rate. Also, real earnings management by higher-ability managers gives a signal of better future profitability in the region where the firm is headquartered with a lower crime rate. Originality/value This research contributes to filling the previous gap of managerial characteristics ability-related on real earnings management by providing regional crime rate as a determinant factor of managers’ ethical behavior. This research is the first one to considers the regional crime rate treatment to the relationship between MA and real earnings management especially in Indonesia. This research also provides new evidence of efficient real earnings management for a lower crime rate group of samples to give a signal of better future profitability.

scholarly journals The relationship between cash holdings, investment opportunities and financial constraint with audit fees

2018 ◽  
Vol 3 (1) ◽  
pp. 15-27 ◽  
Author(s):  
Mohammad Mohammadi ◽  
Behzad Kardan ◽  
Mahdi Salehi
Keyword(s):  
Significant Relationship ◽  
Stock Exchange ◽  
Cash Holdings ◽  
Audit Fees ◽  
Financial Constraint ◽  
Manufacturing Companies ◽  
Content Type ◽  
Data Regression ◽  
Investment Opportunities ◽  
The Relationship

Purpose The purpose of this paper is to investigate the relationship between cash holdings, investment opportunities and financial constraint with audit fees in Iran. Design/methodology/approach In order to collect data, all manufacturing companies listed on the Tehran Stock Exchange are used to test the hypotheses during 2008–2015. Panel data and combined data regression model were used for data analysis. Tests were performed using R statistical software. Findings The results obtained from the statistical analysis of research hypotheses indicated that there is a significant relationship between cash holdings and audit fees. Furthermore, the relationship between cash holdings, financial constraints and audit fees was significant. In addition, there was no significant relationship between cash holdings, investment opportunities and audit fees. Originality/value The current study employed a unique topic in terms of a developing country, and the results may give strength to other developing nations.

scholarly journals The Effect of Audit Committee and Board of Directors Characteristics' on Audit Fees and Internal Control Quality in Iran // El efecto de las características del Comité de Auditoría y de la Junta Directiva sobre los honorarios de auditoría y la calidad del

2019 ◽  
Vol 28 ◽  
pp. 23-42
Author(s):  
Mahdi Salehi ◽  
Noman Rashidi Soorestani
Keyword(s):  
Regression Model ◽  
Board Of Directors ◽  
Internal Control ◽  
Significant Relationship ◽  
Audit Committee ◽  
Stock Exchange ◽  
Audit Fees ◽  
Board Independence ◽  
Panel Regression ◽  
Control Quality

This study investigates the effect of characteristics of board of directors and audit committee strength on audit fees internal control quality. In this study, 84 companies listed on the Tehran Stock Exchange were evaluated from 2014 to 2016. Panel regression model and panel logistic regression model were used for testing hypotheses related to audit fees and the weaknesses of internal control quality, respectively. Results showed that there is no significant relationship between the authority of board of directors and audit committee and the independence board and audit committee expertise and internal control quality weakness and also between the board power and audit fees. There is a significant relationship, however, between the board independence and audit committee authority, expertise, as well as the audit fees. Furthermore, results indicated that there is no significant relationship between board effort and audit fees and internal control quality weakness.

The relationship between management characteristics and financial statement readability

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Maryam Seifzadeh ◽  
Mahdi Salehi ◽  
Bizhan Abedini ◽  
Mohammad Hossien Ranjbar
Keyword(s):  
Earnings Management ◽  
Significant Relationship ◽  
Fixed Effects ◽  
Stock Exchange ◽  
Financial Statement ◽  
Favorable Effect ◽  
Fixed Effects Model ◽  
Content Type ◽  
Managerial Entrenchment ◽  
The Relationship

PurposeThe present study attempts to assess the relationship between management characteristics (managerial entrenchment, CEO narcissism and overconfidence, managers' myopia, real and accrual-based earnings management) and financial statement readability of listed firms on the Tehran Stock Exchange. In other words, this paper seeks to answer the question that “whether management characteristics have a favorable effect on financial statement readability or not.”Design/methodology/approachMultivariate regression model is used to meet the purpose of this study and research hypotheses are also examined using a sample of 1,050 listed observations on the Tehran Stock Exchange during 2012–2017 and by employing multiple regression patterns based on panel data technique and fixed effects model. Moreover, exploratory factor analysis of six variables (tenure, board independence, CEO duality, CEO ownership, board compensation and CEO change) is used for calculating managerial entrenchment and the FGO index is used for measuring readability.FindingsThe obtained results show that there is a negative and significant relationship between managerial entrenchment and accrual-based earnings management and a positive and significant relationship between real earnings management, managers' myopia, managers' narcissism and overconfidence and financial statement readability.Originality/valueSince the present study is the first paper to investigate such a topic in the emerging markets, it provides useful information about intrinsic and acquisitive characteristics of management for accounting information users, analysts and legal institutions that contribute greatly to financial statement readability. Besides, the results of this study aid the development of science and knowledge in this field and fill the existing gap in the literature.

The relationship between audit components and audit market adaptability

2020 ◽  
Vol 27 (3) ◽  
pp. 835-853
Author(s):  
Mahdi Salehi ◽  
Mahdi Saravani ◽  
Safoura Rouhi
Keyword(s):  
Significant Relationship ◽  
Stock Exchange ◽  
Audit Fees ◽  
Policy Makers ◽  
Statistical Population ◽  
Content Type ◽  
Listed Firms ◽  
Audit Market ◽  
Audit Firms ◽  
The Relationship

Purpose This study aims to study the relationship between audit components and collusion in the audit market. Design/methodology/approach The statistical population of the study includes 130 listed firms on the Tehran Stock Exchange from 2012-2017. The data tested using multivariate regression. Findings The findings of the study indicate that there is a positive and significant relationship between Rank A audit firms, competition and audit fees and audit market adaptability. The relationship standard fees and audit market adaptability, however, is negative and significant. Moreover, the results of the study show that there is no significant relationship between opinion shopping, type of audit report, audit market concentration, and agency costs with audit market adaptability. Originality/value The current study fills the gap in this area, and the results of the study may give direction to researchers and policy makers.

Internal control and real earnings management in the French context

2020 ◽  
Vol 18 (2) ◽  
pp. 363-387 ◽  
Author(s):  
Sonda Wali ◽  
Sana Mardessi Masmoudi
Keyword(s):  
Control System ◽  
Earnings Management ◽  
Internal Control ◽  
Information Quality ◽  
Real Earnings Management ◽  
System Quality ◽  
Entire Study ◽  
Content Type ◽  
Control Quality ◽  
Internal Control System

Purpose This study aims to examine whether the internal control system quality in the French context improve the information quality having been reflected by the level of real earnings management (REM) measured by inventory overproduction, discretionary expenses reduction and sales manipulation. Design/methodology/approach The research uses a multiple regression analysis to examine the association between internal control and REM. The years 2010-2015 are used as analysis period by focusing on the French context. Three panel data are applied to the companies belonging to the Cotation Assistée en Continu (CAC) 40 index for the entire study period. Findings The results show that high internal control index has a negative impact on the REM and that better internal control indeed makes financial reporting more credible to investors. Further, the results demonstrate that control environment, risk assessment, control activities and monitor are the components that mainly affect REM. Originality/value The results contribute to the literature dealing with the relationship between internal control quality and REM by shedding light on the importance of internal control quality in improving information quality in the French context. Moreover, this study is using a quantitative measure of the internal control quality while much of the prior literature uses material weaknesses to estimate the effectiveness of internal control system.

HUBUNGAN BOARD DAN KOMITE AUDIT TERHADAP MANAJEMEN LABA

2010 ◽  
Author(s):  
Fivi Anggraini
Keyword(s):  
Corporate Governance ◽  
Moral Hazard ◽  
Earnings Management ◽  
Conflict Of Interest ◽  
Significant Relationship ◽  
Stock Exchange ◽  
Earning Management ◽  
Independent Directors ◽  
Relationship Of ◽  
The Relationship

Earnings management is the moral hazard problem of manager that adses because of the conflict of interest between the manager as agent and the stakeholder and the owner as principal. The behavior of earnings management will immediately influence the reported earning. The aims of this research at examining the relationship of board and audit committe to earnings management. The samples of this research is all of companies member Corporate Governance Perception Index (CGPI) in the years of 2003-2006 which were listed in Jakarta Stock Exchange. The results of this study show that (1) the proportion of independent directors on the board had not significant relationship to earning management, (2) competence of independent directors on the board had not significant relationship to earning management, (3) the size of board had significant relationship to earning management, (4) the proportion of independent directors on the audit committe had not significant relationship to earning management, and (5) competence of members of the audit committe had significant relationship to earning management.

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