Skip to main content
SpringerLink
Log in

Impact of Audit Quality on the Firms Performance and the Mediation of Accrual Earning Management—Conceptual Paper

  • Conference paper
  • First Online:
Sustainable Finance, Digitalization and the Role of Technology (ICBT 2021)

Part of the book series: Lecture Notes in Networks and Systems ((LNNS,volume 487))

Included in the following conference series:

  • 795 Accesses

Abstract

The quality of financial reports is key to confident and informed markets and investors. The purpose of the independent audit is to provide confidence in the quality of financial reports. In addition, accrual accounting provides for a better sense of a company’s overall financial health than the cash basis accounting method. Therefore, the rational conceptualization between audit quality, accrual earning management, and financial performance is essential and must be examined especially in the companies listed in the stock market. The proposed model of this research has external audit and audit committee effeteness as predictors for both accrual earning management, and firms’ financial performance. In addition, accrual earning management is mediating the relationships between audit quality and financial performance. Further work is important to empirically examine the model to validate the proposed relationships and make a comparison between the different markets.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 259.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 329.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Abbott, L.J., et al.: Internal audit quality and financial reporting quality: the joint importance of independence and competence. J. Account. Res. 54(1), 3–40 (2016)

    Article  Google Scholar 

  • Abid, A., Shaique, M., AnwarulHaq, M.: Do big four auditors always provide higher audit quality? Evidence from Pakistan. Int. J. Financ. Stud. 6(2), 58 (2018)

    Article  Google Scholar 

  • Ajide, F.M., Aderemi, A.A.: The effects of corporate social responsibility activity disclosure on corporate profitability: empirical evidence from Nigerian commercial banks. IOSR J. Econ. Financ. (IOSRJEF) 2(6), 17–25 (2014)

    Article  Google Scholar 

  • Azila-Gbettor, E.M., et al.: Structural aspects of corporate governance and family firm performance: a systematic review. J. Family Bus. Manag., 306−330 (2018)

    Google Scholar 

  • Bao, S.R., Lewellyn, K.B.: Ownership structure and earnings management in emerging markets—an institutionalized agency perspective. Int. Bus. Rev. 26(5), 828–838 (2017)

    Article  Google Scholar 

  • Bartlett, R.P., Partnoy, F.: The misuse of Tobin’s Q. UC berkeley public law research paper (2018)

    Google Scholar 

  • Barua, A., Mani, D., Mukherjee, R.: Measuring the business impacts of effective data (2012). http://www.sybase.com/files/White_Papers. Accessed 15 Sept 2012

  • Baxter, P., Cotter, J.: Audit committees and earnings quality. Account. Financ. 49(2), 267–290 (2009)

    Article  Google Scholar 

  • Benkel, M., Mather, P., Ramsay, A.: The association between corporate governance and earnings management: the role of independent directors. Corp. Ownersh. Control. 3(4), 65–75 (2006)

    Article  Google Scholar 

  • Brauer, M., Mammen, J., Luger, J.: Sell-offs and firm performance: a matter of experience? J. Manag. 43(5), 1359–1387 (2017)

    Google Scholar 

  • Brigham, E.F., et al.: Financial Management: Theory And Practice, Canadian Edition. Nelson Education (2016)

    Google Scholar 

  • Chandra, P.: Financial management. Tata McGraw-Hill Education (2011)

    Google Scholar 

  • Chang, J.C., Sun, H.L.: Does the disclosure of corporate governance structures affect firms’ earnings quality? Rev. Account. Financ. (2010)

    Google Scholar 

  • Dehkordi, H.F., Makarem, N.: The effect of size and type of auditor on audit quality. Int. Res. J. Financ. Econ. 80, 121 (2011)

    Google Scholar 

  • El Diri, M.: Introduction to Earnings Management. Springer, Heidelberg (2017)

    Google Scholar 

  • El Moslemany, R., Nathan, D.: Ownership structure and Earnings Management: evidence from Egypt. Int. J,. Bus. Econ. Dev. (IJBED) 7(1) (2019),1-15

    Google Scholar 

  • El-Habashy, H.A.: The effects of board and ownership structures on the performance of publicly listed companies in Egypt. Acad. Account. Financ. Stud. J. 23(1), 1–15 (2019)

    Google Scholar 

  • Elvin, P., Hamid, N.I.N.A.: Review on ownership structure, corporate governance and firm performance. J. Kemanusiaan 15(1) (2017)

    Google Scholar 

  • Fama, E.F.: Banking in the theory of finance. J. Monet. Econ. 6(1), 39–57 (1980)

    Article  Google Scholar 

  • Fama, E.F., Jensen, M.C.: Separation of ownership and control. J. Law Econ. 26(2), 301–325 (1983)

    Article  Google Scholar 

  • Habbash, M., Alghamdi, S.: Audit quality and earnings management in less developed economies: the case of Saudi Arabia. J. Manag. Govern. 21(2), 351–373 (2017)

    Article  Google Scholar 

  • Habib, A., Ranasinghe, D., Muhammadi, A.H., Islam, A.: Political connections, financial reporting and auditing: survey of the empirical literature. J. Int. Account. Audit. Tax. 31, 37–51 (2018)

    Article  Google Scholar 

  • Hay, D.C., Knechel, W.R., Wong, N.: Audit fees: a meta-analysis of the effect of supply and demand attributes. Contemp. Account. Res. 23(1), 141–191 (2006)

    Article  Google Scholar 

  • Healy, P., Wahlen, J.: A review of the earnings management literature and its implication for standard setting. Account. Horiz. 13(4), 365–383 (1999)

    Article  Google Scholar 

  • Jensen, M., Meckling, W.: Theory of the firm: managerial behavior, agency costs and ownership structure. J. Financ. Econ. 3(4), 305–360 (1976)

    Article  Google Scholar 

  • Kane, G.D., Velury, U.: The role of institutional ownership in the market for auditing services: an empirical investigation. J. Bus. Res. 57(9), 976–983 (2004)

    Article  Google Scholar 

  • Kothari, S., Leone, P., Wasley, C.: Performance matched discretionary accrual measures. J. Account. Econ. 39, 163–197 (2005)

    Article  Google Scholar 

  • Lo, A.W., Wong, R.M., Firth, M.: Can corporate governance deter management from manipulating earnings? Evidence from related-party sales transactions in China. J. Corp. Finan. 16(2), 225–235 (2010)

    Article  Google Scholar 

  • Mautz, R.K., Sharaf, H.A.: The philosophy of auditing (1961)

    Google Scholar 

  • Nagy, A.L., Cenker, W.J.: An assessment of the newly defined internal audit function. Manag. Audit. J. 17(3), 130–137 (2002)

    Article  Google Scholar 

  • Nguyen, N.P.: Performance implication of market orientation and use of management accounting systems. J. Asian Bus. Econ. Stud. (2018)

    Google Scholar 

  • Omondi, M.A.: Internal control systems on financial accountability in national public secondary schools in Kenya. Doctoral dissertation, JKUAT-COHRED (2021)

    Google Scholar 

  • Osadchy, E.A., Akhmetshin, E.M., Amirova, E.F., Bochkareva, T.N., Gazizyanova, Y., Yumashev, A.V.: Financial statements of a company as an information base for decision-making in a transforming economy (2018)

    Google Scholar 

  • Piot, C., Janin, R.: External auditors, audit committees and earnings management in France. Eur. Account. Rev. 16(2), 429–454 (2007)

    Article  Google Scholar 

  • Rad, S.E.M., Salehi, H., Pour, H.V.: A study of the interaction of audit quality and ownership structure on earnings management of listed firms on Tehran Stock Exchange. Int. J. Humanit. Cult. Stud. (IJHCS) 1596–1606 (2016). ISSN 2356-5926

    Google Scholar 

  • Rahman, R.A., Ali, F.H.M.: Board, audit committee, culture and earnings management: Malaysian evidence. Manag. Audit. J. (2006)

    Google Scholar 

  • Robinson, T.R.: International Financial Statement Analysis. Wiley, Hoboken (2020)

    Google Scholar 

  • Roychowdhury, S., Shroff, N., Verdi, R.S.: The effects of financial reporting and disclosure on corporate investment: a review. J. Account. Econ. 68(2–3), 101246 (2019)

    Article  Google Scholar 

  • Stanley, J.D.: Is the audit fee disclosure a leading indicator of clients’ business risk? Audit. J. Pract. Theory 30(3), 157–179 (2011)

    Article  Google Scholar 

  • Suparna, M.: Corporate governance and its impact on financial performance: a review study. Our Heritage 68(30), 11559–11570 (2020)

    Google Scholar 

  • Ugwunta, D.O., Ugwuanyi, B.U., Ngwa, C.U.: Effect of audit quality on market price of firms listed on the Nigerian stock market. J. Account. Taxat. 10(6), 61–70 (2018)

    Article  Google Scholar 

  • Wan, W., Zhou, F., Liu, L., Fang, L., Chen, X.: Ownership structure and R&D: the role of regional governance environment. Int. Rev. Econ. Financ. 72, 45–58 (2021)

    Article  Google Scholar 

  • Watts, R., Zimmerman, J.: Positive Accounting Theory. Prentice Hall, Eaglewood Cliffs (1986)

    Google Scholar 

  • Whittington, R., Pany, K.: Principles of Auditing and Other Assurance Services. Citeseer (2010)

    Google Scholar 

  • Yu, L.: Analysis on the application of information processing technology in accounting. In: Journal of Physics: Conference Series, vol. 1915, no. 4, p. 042064. IOP Publishing, May 2021

    Google Scholar 

  • Zang, A.Y.: Evidence on the trade-off between real activities manipulation and accrual-based earnings management. Account. Rev. 87(2), 675–703 (2011)

    Article  Google Scholar 

  • Alareeni, B.A.: The associations between audit firm attributes and audit quality-specific indicators: a meta-analysis. Manag. Audit. J. 34(1), 6–43 (2019). https://doi.org/10.1108/MAJ-05-2017-1559

    Article  Google Scholar 

  • Areiqat, A.Y., Hamdan, A., Alheet, A.F., Alareeni, B.: Impact of artificial intelligence on E-commerce development. In: Alareeni, B., Hamdan, A., Elgedawy, I. (eds.) International Conference on Business and Technology. Lecture Notes in Networks and Systems, vol. 194, pp. 571–578. Springer, Cham (2020). https://doi.org/10.1007/978-3-030-69221-6_43

    Chapter  Google Scholar 

Download references

Acknowledgements

The author would like to thank the Palestine Technical University-Kadoorie for their financial support to conduct this research.

Author information

Authors and Affiliations

  1. Palestine Technical University-Kadoorie, West Bank, Tulkarm, Palestine

    Osama Khader

Authors
  1. Osama Khader
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Osama Khader .

Editor information

Editors and Affiliations

  1. Middle East Technical University, Northern Cyprus Campus, Kalkanlı, Güzelyurt, Turkey

    Bahaaeddin Alareeni

  2. College of Business of Finance, Ahlia University, Manama, Bahrain

    Allam Hamdan

Rights and permissions

Reprints and permissions

Copyright information

© 2023 The Author(s), under exclusive license to Springer Nature Switzerland AG

About this paper

Check for updates. Verify currency and authenticity via CrossMark

Cite this paper

Khader, O. (2023). Impact of Audit Quality on the Firms Performance and the Mediation of Accrual Earning Management—Conceptual Paper. In: Alareeni, B., Hamdan, A. (eds) Sustainable Finance, Digitalization and the Role of Technology. ICBT 2021. Lecture Notes in Networks and Systems, vol 487. Springer, Cham. https://doi.org/10.1007/978-3-031-08084-5_16

Download citation

  • DOI: https://doi.org/10.1007/978-3-031-08084-5_16

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-031-08083-8

  • Online ISBN: 978-3-031-08084-5

  • eBook Packages: EngineeringEngineering (R0)

Publish with us

Policies and ethics

Search

Navigation