Impact of Audit Quality on Earnings Management: An Empirical Analysis in the Indian Context

2021 ◽  
pp. 097468622110457
Author(s):  
Khushboo ◽  
Karamjeet Singh
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Stock Exchange ◽  
Management Strategies ◽  
Developed Countries ◽  
Real Earnings Management ◽  
Indian Context ◽  
Big 4 ◽  
The Developed Countries ◽  
Reported Earnings

Anchoring upon the agency theory of corporate governance, auditing function as a monitoring mechanism is supposed to alleviate information asymmetry between the managers and the shareholders of a company by controlling distortion of reported earnings by the former. The aim of this study is to determine the effect of audit quality on earnings management and substitutability of earnings management strategies using a sample of all Bombay Stock Exchange-listed companies for 10 financial years, that is, from 31 March 2010 to 31 March 2019. The previous studies addressing the issue have mostly captured companies in the developed countries or have dealt with only one strategy at a time. This study adds to the literature by undertaking a comprehensive approach to the analysis by studying both accrual earnings management as well as real earnings management in the Indian context, which are estimated through various models. The findings suggest significance of Big 4 auditors in constraining all forms of earnings management. For firms within the sample that have the incentives to distort earnings, long auditor tenure is found to be aiding earnings management through accruals, thus impairing audit quality.

scholarly journals The Effect of Earnings Management on Company’s Performance with Audit Quality and Company’s Size as Moderating Variables

Telaah Bisnis ◽  
2019 ◽  
Vol 18 (2) ◽  
pp. 2017
Author(s):  
Aprih Susanto ◽  
Rahmatya Widyaswati
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Corporate Performance ◽  
Stock Exchange ◽  
Financial Statements ◽  
Performance Effect ◽  
Accounting Firm ◽  
Big 4 ◽  
Manufacturing Company ◽  
Negative Effect

Abstract The purpose of this study was to see how the effects of earnings management on the perfor­mance of companies with audit quality and size of the company as a moderating variable. High Quality Audit demonstrated with large or small public accounting firm. The size of the company can be seen from how many assets owned by the company itself. The sample in this study is based on purposive sampling, with specific criteria that a manufacturing company listed on the Stock Exchange during the period 2011-2014 which publishes annual financial statements (annual report) in complete accordance with the measurement variables to be studied in this re­search, manufacturing company whose financial statements are audited by KAP Big 4 and non- Big 4. So in the get the 22 companies audited by the Big 4 accounting firm and the 28 companies audited by KAP Non Big 4. The results of this study variable Profit Management significant negative effect on the performance effect Perusahaan. VariabelCompany’s Size significantly strengthen the positive relationship between Profit Management with Corporate performance. Variable Audit Quality significant positive effect strengthens the relationship between the Profit Management with Corporate Performance.  

scholarly journals Pengaruh Corporate Governance, Profitabilitas, Leverage, dan Kualitas Audit Terhadap Real Earnings Management

2018 ◽  
Vol 2 (1) ◽  
pp. 35
Author(s):  
Clarissa Maya Devi
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Total Sample ◽  
Real Earnings Management ◽  
Manufacturing Company ◽  
Corporate Governace

 Abstract :The purpose of this study is to examine the affects of corporate governace, profitability, leverage and audit quality on real earnings management in manufacturing company  listed in Indonesia Stock Exchange during period 2014 until 2016. The total sample of this research was 63 manufacture companies. The result of this research shows that   profitability and audit quality has positive and significant affects on real earnings management, but corporate governance   and leverage has no effect on real earnings management. Keywords :Real Earnings Management, Corporate Governance, Audit Committee Meetings, Audit Committee of Accounting Experts, Profitability, Leverage, Audit Quality.

scholarly journals The impact of audit quality on real earnings management in the UK context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Numan Chowdhury ◽  
Yasser Eliwa
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Production Costs ◽  
Real Earnings Management ◽  
Sampled Data ◽  
Content Type ◽  
Listed Firms ◽  
Big 4 ◽  
The Uk ◽  
The Impact

Purpose The purpose of this paper is to examine whether audit quality influence real earnings management activities using a sample of UK listed firms that have strong incentives to manage earnings upward through meeting past year’s earnings as a benchmark in the post-adoption period of International Financial Reporting Standards (IFRS). Design/methodology/approach The authors use a sample of 4,774 firm-year observations of UK listed firms during the period 2005–2018. Univariate and multivariate analyses have been conducted to test the association after controlling for firm characteristics and institutional variables. Findings The study reports that the presence of Big 4 auditors is significantly and positively related with greater levels of sales and discretionary expenses manipulation. Though the authors do not find any conclusive evidence on production costs manipulation, the aggregated measure of real earnings management shows a significant positive association with the presence of Big 4 auditors. Practical implications The study implies that managers who have incentives to manage earnings upward around the UK firms take advantage of the accounting flexibility in defining policies while reducing information asymmetry among the investors to signal better future performance. The approach to detect earnings manipulation as described in the auditing standards fails to limit the managerial use of real activities due to limited scope and unclear guidance. Thus, due to the significant impact on public policies, the results should, therefore, be of interest to the regulators and standard setters. Originality/value To the best of the authors’ knowledge, this is the first study that examines the association between audit quality and real earnings management for the UK all-purpose operational firms in sampled data that just meet past year’s earnings as a benchmark in the post-IFRS period.

scholarly journals KUALITAS AUDIT SEBAGAI PEMODERASI PENGARUH MANAJEMEN LABA TERHADAP NILAI PERUSAHAAN

2020 ◽  
Vol 3 (2) ◽  
pp. 174-190
Author(s):  
I Putu Edi Darmawan
Keyword(s):  
Earnings Management ◽  
Firm Value ◽  
Audit Quality ◽  
Stock Exchange ◽  
Sampling Technique ◽  
Discretionary Accruals ◽  
Real Earnings Management ◽  
Manufacturing Companies ◽  
Negative Effect ◽  
The Impact

This study aims to test and analyze the impact of accrual earnings management and real earnings management on firm value empirically. Also, audit quality's role on the effect of accrual earnings management and total earnings management on firm value. The analytical method used is Moderated Regression Analysis (MRA). This research's population is manufacturing companies listed on the Indonesia Stock Exchange during the period 2013 to 2017. The sampling technique used is purposive sampling. This study found that accrual earnings management, which is proxied by discretionary accruals, positively affects firm value. Real earnings management has a negative effect on firm value. Audit quality cannot weaken the effect of accrual earnings management on firm value. However, audit quality weakens the effect of real earnings management on firm value.

scholarly journals Does The Presence Of Independent Directors Influence Accruals Management?

2011 ◽  
Vol 25 (6) ◽  
Author(s):  
Ramzi Benkraiem
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Ownership Structure ◽  
Boards Of Directors ◽  
Audit Quality ◽  
Stock Exchange ◽  
Independent Directors ◽  
Accruals Management ◽  
Big 4 ◽  
Corporate Governance Mechanisms

<p class="MsoNormal" style="text-align: justify; margin: 0in 38.3pt 0pt 0.5in;"><span style="font-size: 10pt; mso-ansi-language: EN-US;"><span style="font-family: Times New Roman;">Recent debates about the functioning of boards of directors have focused on the disciplinary role of independent directors (ID). Evaluating the effectiveness of this role is an interesting empirical question. This study seeks to examine the influence of these directors and two other corporate governance mechanisms<span style="color: black;">, namely the audit quality and the ownership structure, on earnings management as measured by working capital discretionary accruals (WCDAC). The analysis, conducted over a period of 4 years from 2001 to 2004, is based on a sample of 239 different French companies listed on the Paris stock exchange. </span>The findings show that the presence of ID can moderate the management of WCDAC. This role appears to be more effective <span style="color: black;">when these ID make up at least one third of the members of boards of directors, as recommended by the Vi&eacute;not 1999 report. The Big 4 auditors can also limit this discretionary adjustment. However, no statistically significant relationship was observed between dispersion vs. concentration of ownership structure and WCDAC. This study adds to the limited research into the relationship between corporate governance and earnings management in France. It also gives empirical evidence on the effectiveness of the Vi&eacute;not 1999 report&rsquo;s recommendations. Thus, it should be of interest to academics as well as regulators in preparing and amending corporate governance laws.</span></span></span></p>

scholarly journals KUALITAS AUDIT, KARAKTERISTIK PERUSAHAAN DAN MANAJEMEN LABA RIIL

2019 ◽  
Vol 19 (2) ◽  
pp. 191
Author(s):  
Christina Dwi Astuti ◽  
Nandha Pangestu
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Positive Impact ◽  
Stock Exchange ◽  
Real Earnings Management ◽  
Manufacturing Companies ◽  
Analysis Technique ◽  
Operating Cash Flow ◽  
The Impact ◽  
Big Four

<p>This study aims to get the empirical evidence the impact of audit quality and company’s characteristics on real earnings management in manufacturing companies listed at the Indonesia Stock Exchange. Real earnings management in this study is usingRoychowdhury’s model. Overall, real earnings management is measured through abnormal operating cash flow, abnormal production and other abnormal costs, for audit quality using Big Four and Non Big Four audit firm, for company characteristics using company’s size, leverage, and profitability.</p><p>The population used in this study were all manufacturing companies that met the specified criteria and were listed at the Indonesia Stock Exchange from 2011 to 2018. Total of 18 companies were selected using the purposive sampling method, so it gathered 144 data to process. The analysis technique using the Multiple Regression Analysis.</p><p>The results of testing the hypothesis in this study indicate that leverage and profitability has positive impact on real earnings management, while audit quality and size does not impact on it. If leverage and profitability are higher, it can be indicated that the company carried out a real earnings management.</p>

scholarly journals Pengaruh Independensi dan Keahlian Komite Audit Terhadap Manajemen Laba Riil dengan Kualitas Audit Sebagai Variabel Moderasi

2021 ◽  
Vol 2 (4) ◽  
pp. 345-358
Author(s):  
Ditta Dwi Astuti ◽  
◽  
Lidya Primta Surbakti ◽  
Aniek Wijayanti ◽  
◽  
...  
Keyword(s):  
Earnings Management ◽  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Secondary Data ◽  
Production Costs ◽  
Real Earnings Management ◽  
Annual Reports ◽  
Panel Data Regression ◽  
Negative Effect

Abstract Purpose: This study aimed to analyze the influence of the audit committee's independence and expertise on real earnings management by using audit quality as the moderating variable and firm size, leverage, and profitability as control variables. Research Methodology: Real earnings management was processed by Roychowdhury’s model and it used the abnormal value of operating cash flow, discretionary expenses, and production costs. This study used secondary data from annual reports of non-financial companies listed on the Indonesia Stock Exchange for the period 2017-2019 and the total was 516 companies. This study used panel data regression and was processed by Stata. Results: This study proves that audit committee independence and leverage have a significant negative effect on real earnings management through discretionary expenses and audit quality cannot moderate the relationship between audit committee independence and audit committee expertise on real earnings management. Limitation: The study used audit quality as moderating variable. However, the results cannot prove that audit quality is able to affect real earnings management. Contribution: The results obtained can be used for investors' and creditors' consideration when making investment or loans decisions and can be references for further research.

scholarly journals Audit Firm Size, Audit Fee, Audit Reputation and Audit Quality: The Case of Listed Companies in Vietnam

2017 ◽  
Vol 9 (1) ◽  
pp. 429 ◽  
Author(s):  
Ngoc Kim Pham ◽  
Hung Nguyen Duong ◽  
Tin Quang Pham ◽  
Nga Thi Thuy Ho
Keyword(s):  
Firm Size ◽  
Audit Quality ◽  
Stock Exchange ◽  
Critical Role ◽  
Audit Fees ◽  
Listed Companies ◽  
Developed Countries ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms

Audit quality is considered as an essential factor affecting the reliability of financial information. The aim of this study is to assess the effects of audit firm characteristics, including audit reputation, audit fees and audit firm size, on audit quality. A sample of 192 companies listed on Hanoi and Ho Chi Minh Stock Exchange for the period of 2006-2014 was selected. Multiple regression was used to analyze the data. The findings show that Big 4 auditors in Vietnam provide high audit quality than non-Big 4 auditors. Interestingly, in Vietnam context, except for the audit firms in the Big 4 group, the findings suggest that smaller audit firms provide better audit quality. Additionally, the results reveal that the more audit fees the auditors receive, the lower audit quality they provide. The critical role of audit quality has attracted significantly scholarly attention, however, prior studies have mainly focused on firms in developed countries. Little is known about audit quality in an emerging economy context such as Vietnam. This study adds to the limited number of studies on audit quality of listed companies in emerging economies. 

scholarly journals THE EFFECT OF CORPORATE GOVERNANCE TO REAL EARNINGS MANAGEMENT WITH AUDIT QUALITY AS A MODERATING VARIABLE EMPIRICAL STUDY ON COMPANIES LISTED IN INDONESIA STOCK EXCHANGE

2017 ◽  
Vol 4 (1) ◽  
pp. 1
Author(s):  
M. Anwar Masruri ◽  
Vinola Herawaty
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Quality ◽  
Stock Exchange ◽  
Sample Selection ◽  
Real Earnings Management ◽  
Company Size ◽  
Variable Model ◽  
Negative Effect ◽  
Positive Effect

<p><em>This research is conducted in the period 2013 to 2015 and the selected sample with purposive sampling method using criteria that have been determined. Samples are selected for companies that present the required data in this study. A total of 75 sample companies that have criteria based on this sample selection method. The method of analysis applied in this research is quantitative method and statistical analysis used is multiple regression analysis.</em><em></em></p><p><em>The result of the research shows that CG variable has significant negative effect on REM_Index model, Audit Quality variable strengthen negative correlation between Corporate Governance and Real Earnings Management significantly, Audit Quality and Company Size negatively affect REM_Index model on Abn_CFO model, Audit Quality variable proved to influence Abn_CFO. Abn_DisEx variable model of Corporate Governance proved negatively significant to Abnormal Discreationary Expenses and Abn_Prod Models Moderation and Company Size Model has a significant positive effect on Abnormal Production Cost.</em><em></em></p>

scholarly journals PENGARUH RELATED PARTY TRANSACTIONS TERHADAP PENGGUNAAN MANAJEMEN LABA PADA PERUSAHAAN MANUFAKTUR DI INDONESIA

2021 ◽  
Vol 14 (2) ◽  
pp. 50-65
Author(s):  
William Teguh ◽  
Rizky Eriandani
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Stock Exchange ◽  
Real Earnings Management ◽  
Management Tool ◽  
Actual Condition ◽  
Manufacturing Companies ◽  
Related Party Transactions

The company's profit can be one of the factors that can determine an investor's decision to make an investment. The company's large and growing profits will surely be attractive to investors. However, the profit reported by the company does not necessarily guarantee that the reported information is the actual condition of the company. Companies can do earnings management resulting from gaps in information between company management and external parties. One of the activities that can be used as an earnings management tool is RPT. This study aims to determine whether RPT is positively related to real earnings management or accrual earnings management on manufacturing companies in Indonesia during the period between 2017-2019 that have been listed on the Indonesia Stock Exchange. The results showed that RPT has no significant effect on real earnings management or accrual earnings management. These results indicate that RPT is used not for earnings management purposes but as an efficient transaction. There are also other factors that influence earnings management such as audit quality and the number of directors.

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