scholarly journals Keys to reduce earnings management in emerging markets

2014 ◽  
Vol 45 (3) ◽  
pp. 81-95 ◽  
Author(s):  
M. Palacios Manzano ◽  
I. Martínez Conesa ◽  
H. Garza Sánchez
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Investor Protection ◽  
Reporting Standard ◽  
Generally Accepted Accounting Principles ◽  
Listed Firms ◽  
Accounting Regulation ◽  
Big 4 ◽  
High Standards

This paper examines earnings quality adapted to International Financial Reporting Standards in Mexican emerging capital market and how investor protection and audit quality to override managers’ incentives to engage in earnings management. We evidence that the new accounting regulation could be considered of high quality financial reporting standard because it is associated with lower earnings management. The analyses also suggest that cross-listed firms have higher quality local generally accepted accounting principles accounting information as measured by earnings management. There is also evidence that earnings of Mexican companies with Big 4 auditors are of higher quality. The results contribute to the ongoing debate on whether high standards are sufficient and effective in countries with weaker investor protection rights.

Audit quality and earnings management: evidence from Jordan

2016 ◽  
Vol 17 (2) ◽  
pp. 170-189 ◽  
Author(s):  
Ebraheem Saleem Salem Alzoubi
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Least Square ◽  
Cross Sectional ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Jones Model

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.

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 The Effect of Audit Quality on Accruals Earnings Management in Nigerian Listed Firms

2019 ◽  
Vol 8 (4) ◽  
pp. 4894-4897
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Stock Exchange ◽  
Audit Fees ◽  
Annual Reports ◽  
Management Level ◽  
Listed Firms ◽  
The Public ◽  
Creative Accounting

Earnings manipulation studies are of utmost importance to both the shareholders and stakeholders because of its effect in investment and management decisions. The practices are directly affecting the quality of financial reporting and increase information asymmetry between the management and shareholders. Thus, Audit Quality is one of the tool academicians use in measuring the level of earning practices in the organizations. However, this study investigated the possible effect of audit quality towards the change of earnings management level among the Nigerian listed firms. The study used all the public listed firms in the main flow of the Nigerian Stock Exchange (NSE) as a population from the year 2012 until 2017. Sixty-three selected companies were selected as a sample based on the filtration criteria of the study. The financial data was obtained from the Thompson Reuters DataStream, and the corporate governance data was from the annual reports and accounts of the companies. Audit quality and accrual model was used to test the relationship between the study variable. The study applied multiple regression to test the model. It was revealed from the regression that audit quality is negatively significant with accrual earnings management. This finding is indicating that any increases in the unit of audit fees will decrease the earnings management of the selected firms. Thus, the finding is supporting agency theory and is contrary to the assumption of creative accounting theory. The result of this study will assist the relevant authorities in decision making and policy setting towards the best practices of the Nigerian listed firms.

The Impact of IFRS adoption and AQ upon Earnings Management in Saudi Stock Exchange (Tadawul): تأثير تطبيق المعايير الدولية لإعداد التقارير المالية وجودة المراجعة على إدارة الأرباح للشركات المدرجة في السوق المالية السعودية (تداول)

2020 ◽  
Vol 4 (15) ◽  
Author(s):  
Maha Nasser Allehaidan
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Stock Exchange ◽  
Negative Relationship ◽  
Listed Firms ◽  
Discretionary Accrual ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Impact

The main purpose of this paper is to examine the impact of International Financial Reporting Standards (IFRS) adoption and Audit Quality (AQ) on Earnings Management (EM) practices in Saudi Arabia listed firms. EM is measured by the discretionary accrual using Healy (1985) and Kothari, Leone, and Wasley (2005) models. The research sample contains 16 Saudi listed firms during the period from 2014 to 2019. Statistical analysis including t-test and linear regression were used to test the research hypotheses. The investigation indicates that there is a negative relationship between IFRS adoption and EM practices, especially if it is combined with AQ, while it found a positive relationship between firms’ size and accrual EM, and no significant impact of AQ on firms’ debt ratio and EM practices. The importance of these results lies in providing clear evidence that the adoption of IFRS in developing countries has helped reduce earnings manipulation practices, which contributes to gaining confidence in Saudi firms and thus attracting many foreign investments.

scholarly journals Earnings Management Behavior in Malaysia: The Role of Ownership Structure and External Auditing

2020 ◽  
Vol 19 (3) ◽  
pp. 185-221
Author(s):  
Nor Irdawati Mahyuddin ◽  
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Discretionary Accruals ◽  
Real Earnings Management ◽  
Financial Reporting Quality ◽  
External Control ◽  
Listed Firms

"This paper aims to empirically investigate firms’ earnings management (EM) behaviour, representing an issue in the realm of corporate financial reporting. Specifically, it explores the strategic roles of two common governance elements of ownership (managerial, institutional and family) and external audit in shaping the firms’ EM behaviour based on the two common EM attributes of Discretionary Accruals (DA) and Real Activities EM (REM). The analyses based on 227 survived Malaysian listed firms throughout the sixteen-year period from 2001 to 2016 (3,632 firm-year observations) indicate a dynamic EM behaviour depending on the presence of different ownership structures. Whilst a high percentage of family and institutional ownership mitigates DA, it however does not hold true for REM. Further, this paper also shows that the external control mechanism of audit quality is not significant in mitigating both EM attributes. The empirical results suggest that firms facing different challenges would affect the firms’ financial reporting behaviours in their choice of EM. The paper adds to the growing body of empirical knowledge dealing with the determinants of DA and REM from the lens of an emerging economy like Malaysia. KEYWORDS: Earnings management, discretionary accruals, real earnings management, accrual earnings management, financial reporting quality."

scholarly journals A longitudinal study of audit quality differences among independent auditors

2019 ◽  
Vol 21 (2) ◽  
pp. 234-246 ◽  
Author(s):  
Manh Dung Tran ◽  
Khairil Faizal Khairi ◽  
Nur Hidayah Laili
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Financial Statements ◽  
Cross Sectional ◽  
Content Type ◽  
Listed Firms ◽  
Goodwill Impairment ◽  
Big 4 ◽  
High Level

Purpose The purpose of this paper is to investigate the differences of audit quality of financial statements among auditors, including Big 4 and non-Big 4 auditors. Design/methodology/approach By employing cross-sectional analysis of compliance (a proxy of audit quality) of goodwill impairment testing of listed firms in the context of Hong Kong, the variation of audit quality of financial statements of auditees has been shown. Findings Audit quality of Big 4 auditors is viewed to be higher than that of non-Big 4 audit firms and the homogeneity of audit quality among Big 4 auditors is not long accepted, but variation. Practical implications Even though unqualified opinions have been given on the auditors’ reports, the quality of financial statements audit is a skeptical issue because of the high level of non-compliance of goodwill impairment testing under International Financial Reporting Standards. Originality/value This study does emphasize the higher audit quality of financial statements of Big 4 auditors than that of non-Big 4 auditors and stresses the variation of audit quality among Big 4 auditors.

scholarly journals Pengaruh Adopsi International Financial Reporting Standard (IFRS) Terhadap Manajemen Laba Dengan Kualitas Audit Sebagai Variabel Moderasi Pada Perusahaan Perbankan Di Bursa Efek Indonesia

2018 ◽  
Vol 6 (1) ◽  
pp. 076-084
Author(s):  
Sutarti . ◽  
Sherly Anggwikara
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Stock Exchange ◽  
Direct Consequence ◽  
Financial Statements ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Positive Effects ◽  
Negative Effect

The term earnings management arises as a direct consequence of the efforts of managers performing management accounting information, particularly relating to income (earnings). Earning management can not be categorized as a negative because earnings management is not always related to earnings manipulation. At the same time, Indonesia is required to abide by the development of IFRS-based accounting standards. It aims to improve the reliability, fairness, and transparency of financial statements in accordance with international accounting standards.The purpose of this study was (1) to determine how to measure earnings management in the banking company, (2) to determine whether or not the effect of the adoption of IFRS on earnings management, as well as to determine the effect of IFRS adoption when using variable moderation. Moderating variables used in this study include the quality of the audit, while the control variables are firm size, leverage, and operating cash flow. The research on banking companies in Indonesia Stock Exchange as many as 25 companies with a term of five years from the year 2009 to 2013 financial reporting. Data collected by collecting all the financial statements that the research samples that can diakes through IDX website. This study analysis uses multiple regression analysis with SPSS 17. Results showed there were positive effects of the adoption of IFRS on earnings management. Audit quality has a negative effect. The size of the company has a negative effect on earnings management. Leverage is measured by using a formula of debt to equity, showing the results of positive effect on earnings management.

scholarly journals Corporate governance and management of earnings: empirical evidence from selected Nigerian-listed companies

2016 ◽  
Vol 13 (2) ◽  
pp. 189-205 ◽  
Author(s):  
Matthew Adeolu Abata ◽  
Stephen Oseko Migiro
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Panel Data Analysis ◽  
Reporting Quality ◽  
Listed Companies ◽  
Listed Firms ◽  
Management Board

Due to the threat of recorded business failures arising from weak corporate governance and low financial reporting quality on the Nigerian economy, this study investigates the effects of corporate governance variables on earnings management among selected listed firms from the manufacturing and banking sectors. A sample of 24 listed companies from the 2 sectors’ population of 63 was examined to gather empirical data from 2008 to 2013 using multiple regression tools. Employing the panel data analysis approach, board independence, audit committee independence and audit committee size are insignificantly positively correlated with earnings management. Board size is insignificantly negatively correlated with earnings management while ownership structure is insignificantly negatively correlated with earnings management. Audit quality is positively correlated with earnings management, though not statistically significant. Based on these findings, the study concludes that corporate governance structures, as it were, have not helped to address earnings management. The study recommends, among other things considering the first 4 hypotheses that investors should invest in companies with moderate-to-high debt-to-equity ratios as lenders are able to externally monitor companies. It also recommended that regulatory bodies should frequently discharge their supervisory roles by monitoring the companies’ activities to ensure compliance

scholarly journals The Moderating impact of the Big-4 on Audit Committee and Earnings Management: During Pre-Post IFRS Adoption in Malaysia

2020 ◽  
Vol 17 (1A) ◽  
Author(s):  
Mohamed Bayou ◽  
Magdi El-Bannany ◽  
Mohamad Abdul Hamid
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Management Practice ◽  
Statistical Significance ◽  
Reporting Quality ◽  
Auditor Choice ◽  
Dummy Variable ◽  
Big 4

Abstract This study investigates the moderating impart of Audit Quality (AQ) on Audit Committee (AC) and Financial Reporting Quality (FRQ) during pre-post IFRS full adoption. It argues that the AC improves FRQ but subject to the choice of auditor. This study considers several variables on its measurements related to dependent, independent, moderate, control variables which include measures such as discretionary accruals, the yearly number of AC meetings and the dummy variable. AQ is measured by a firm’s auditor choice of the Big-4 and Non-Big 4 as an indication for the demand for high/low quality financial reporting. Using 567 listed firm-year observations from 2009 to 2015, investigations were deducted by examining the statistical significance difference during pre-post IFRS full adoption, using multiple regression analysis and paired sample t-test. The findings show that the Big-4 choice, increase the relationship on the AC and FRQ when companies are adopting IFRS. The level of difference on earnings management practice was not significant. However, the result shows that IFRS full adoption have limited managerial discretion and the possibility for Earnings Management for Malaysian companies. Keywords: IFRS Full Adoption, Audit Quality, Audit Committee, Earnings Management Mohamed Salem M.S. Bayou*, [email protected] Magdi Ahmed Fathi El-Bannany**, [email protected] Mohamad Ali Bin Abdul Hamid

Sign in / Sign up

Export Citation Format

Share Document