scholarly journals Audit Quality and Earnings Management in the Tunisian Context

2012 ◽  
Vol 2 (2) ◽  
pp. 17 ◽  
Author(s):  
Zgarni Inaam ◽  
Hlioui Khmoussi ◽  
Zehri Fatma
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Real Earnings Management ◽  
Financial Security ◽  
Industry Specialization ◽  
Securities Law ◽  
Auditor Industry Specialization ◽  
Auditor Tenure ◽  
Big 4 ◽  
Financial Securities

In this study, we test the effect of the implementation of the financial security law (n° 2005-96) and the audit quality (Big 4 auditors, auditor industry specialization and audit tenure) on constraining the extent of real and accruals based earnings management in the Tunisian context. Using 319 firm-year observations during the period 2000-2010, our results suggest that auditor industry specialization and Big 4 auditors associated with lower levels of accruals earnings management. We also find that the Big 4 auditors enhance the extent of real earnings management (REM). Further, we document that longer auditor tenure is not associated with greater real and accruals earnings management. Finally, our findings suggest that the adoption of the financial securities law of 2005 is not effective on reducing earnings management in the Tunisian context.

Audit Quality and Specialist Tenure

2018 ◽  
Vol 94 (3) ◽  
pp. 113-147 ◽  
Author(s):  
Jennifer J. Gaver ◽  
Steven Utke
Keyword(s):  
Propensity Score ◽  
Propensity Score Matching ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Data Availability ◽  
Client Characteristics ◽  
Industry Specialization ◽  
Auditor Industry Specialization ◽  
Big 4 ◽  
Jel Classifications

ABSTRACT We argue that the association between auditor industry specialization and audit quality depends on how long the auditor has been a specialist. We measure audit quality using absolute discretionary accruals, income-increasing discretionary accruals, and book-tax differences. Our results, based on a sample of Big 4 audit clients from 2003–2015, indicate that auditors who have only recently gained the specialist designation produce a level of audit quality that does not surpass that produced by non-specialist auditors, and is generally lower than the audit quality produced by seasoned specialists. We estimate that the seasoning process takes two to three years. In contrast to prior research that finds no effect of specialization after propensity score matching, we find that seasoned specialists generally produce higher-quality audits than other auditors even after matching. This suggests that the audit quality effect associated with seasoned industry specialist auditors is not due to differences in client characteristics. JEL Classifications: M42. Data Availability: Data used in this study are available from public sources identified in the text.

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.

Auditor Resignations and Auditor Industry Specialization

2008 ◽  
Vol 22 (3) ◽  
pp. 279-295 ◽  
Author(s):  
William J. Cenker ◽  
Albert L. Nagy
Keyword(s):  
Audit Quality ◽  
Local Level ◽  
Primary Analysis ◽  
Industry Specialization ◽  
Auditor Industry Specialization ◽  
Big 4 ◽  
Audit Firms ◽  
Logistic Regressions ◽  
Auditor Specialization ◽  
Local Levels

SYNOPSIS: The increase of Big 4 auditor resignations in the newly regulated auditing environment creates a rich setting to examine the supply-side effects of auditor industry specialization. The authors estimate logistic regressions to examine whether audit firms consider industry specialization at both the local and national levels when deciding on whether to retain or resign from audit clients. The results show a negative relation between auditor industry specialization and auditor resignations when the auditor is a joint specialist (i.e., a specialist at both the national and local levels) and when the auditor is a local specialist only (i.e., a local specialist but not a national specialist). The national specialization alone variable (i.e., the auditor is a national specialist but not a local specialist) is not significant for our primary analysis; however, additional analyses reveal that the significance of this variable varies when incorporating alternative measurements for auditor specialization in the models. Thus, the overall evidence of the national specialization effect on the auditor’s resignation decision is mixed and inconclusive at this point. Based on the additional analyses, the joint and the local specialization effects generally appear to be robust. As such, we conclude that auditors perceive their firms’ industry expertise, particularly at the local level, as reducing both clientele mismatch and litigation risks, and hence improving audit quality.

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 Overvalued Equity on the Relationship between Audit Quality and Earning Quality (Evidence from Iran)

2015 ◽  
Vol 46 ◽  
pp. 119-128
Author(s):  
Seyed Kazem Ebrahimie ◽  
Ali Bahraminasab ◽  
Fatemeh Khorram
Keyword(s):  
Audit Quality ◽  
Stock Exchange ◽  
Sample Population ◽  
Industry Specialization ◽  
Audit Firm ◽  
Auditor Industry Specialization ◽  
Auditor Tenure ◽  
Reverse Relationship ◽  
Earning Quality ◽  
The Relationship

The purpose of this article is to investigate the effect of overvalued equity on the relationship between audit quality and earning quality. In this article audit firm size, auditor industry specialization and auditor tenure were used as audit quality variable. The sample population consists of 189 companies listed in Tehran stock Exchange during the period 2008 to 2012. To test the hypotheses, OLS in Eviews has been used and investigation method of data is panel. The results show a reverse relationship between all audit quality variables and absolute discretionary accruals indicating that high audit quality causes higher earning quality. But the existence of overvalued equity cause decreasing or reversing of these relationships, in other words, when a firm is highly valued the accruals’ decreasing effect of high quality auditors is reduced.

scholarly journals Workload, Tenure Auditor and Industrial Specialization Auditors on Audit Quality with Audit Committee as Moderating

2018 ◽  
Vol 7 (4.34) ◽  
pp. 257
Author(s):  
Daniel T. H. Manurung ◽  
Andhika Ligar Hardika ◽  
Yati Mulyati ◽  
Mohd Haizam Mohd Saudi
Keyword(s):  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Total Sample ◽  
Industry Specialization ◽  
Moderating Variables ◽  
Auditor Industry Specialization ◽  
Auditor Tenure ◽  
Industrial Specialization ◽  
Study Population

This study aims to obtain empirical evidence on audit quality on workload, auditor tenure and auditor industry specialization with the audit committee as a moderating variable. The study population was conducted on non-financial companies listed on the Indonesia Stock Exchange, a total sample of 10 companies research using purposive sampling. The research method uses moderating variables. The results of this study indicate that the workload affects audit quality while audit tenure and auditor industry specialization do not affect audit quality. This study found evidence that the interaction between workload and audit committee affects audit quality while the interaction of audit tenure and industry specialization does not affect audit quality.   

scholarly journals Is Enhanced Audit Quality Associated with Greater Real Earnings Management?

2011 ◽  
Vol 25 (2) ◽  
pp. 315-335 ◽  
Author(s):  
Wuchun Chi ◽  
Ling Lei Lisic ◽  
Mikhail Pevzner
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Audit Fees ◽  
Unintended Consequence ◽  
Real Earnings Management ◽  
Audit Firm ◽  
Management Incentives ◽  
Auditor Tenure ◽  
Earnings Benchmarks ◽  
Jel Classifications

SYNOPSIS We examine whether firms resort to real earnings management when their ability to manage accruals is constrained by higher quality auditors. In settings involving strong upward earnings management incentives, i.e., for firms that meet or just beat earnings benchmarks and firms that issue seasoned equities, we find that city-level auditor industry expertise and audit fees are associated with higher levels of real earnings management. We find similar, albeit weaker, results for the Big N auditors. Our paper suggests an unintended consequence of higher quality auditors constraining accrual earnings management, namely, firms resorting to potentially even more costly real earnings management. We also find that longer auditor tenure is associated with greater real earnings management, which could suggest merits of mandating audit firm rotation. JEL Classifications: M40; M41.

Auditor Industry Specialization and Earnings Quality

2003 ◽  
Vol 22 (2) ◽  
pp. 71-97 ◽  
Author(s):  
Steven Balsam ◽  
Jagan Krishnan ◽  
Joon S. Yang
Keyword(s):  
Audit Quality ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Prior Work ◽  
Brand Name ◽  
Absolute Level ◽  
Industry Specialization ◽  
Earnings Response Coefficients ◽  
Auditor Industry Specialization ◽  
Earnings Response

This study examines the association between measures of earnings quality and auditor industry specialization. Prior work has examined the association between auditor brand name and earnings quality, using auditor brand name to proxy for audit quality. Recent work has hypothesized that auditor industry specialization also contributes to audit quality. Extending this literature, we compare the absolute level of discretionary accruals (DAC) and earnings response coefficients (ERC) of firms audited by industry specialists with those of firms not audited by industry specialists. We restrict our study to clients of Big 6 (and later Big 5) auditors to control for brand name. Because industry specialization is unobservable, we use multiple proxies for it. After controlling for variables established in prior work to be related to DAC and the ERC, we find clients of industry specialist auditors have lower DAC and higher ERC than clients of nonspecialist auditors. This finding is consistent with clients of industry specialists having higher earnings quality than clients of nonspecialists.

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