Audit Quality, Corporate Governance, and Earnings Management: A Meta‐Analysis

International Journal of Auditing 02/2010; 14(1):57 - 77. DOI: 10.1111/j.1099-1123.2009.00403.x


Earnings management is of great concern to corporate stakeholders. While numerous studies have investigated the effects of various corporate governance and audit quality variables on earnings management, empirical evidence is rather inconsistent. This meta-analysis identifies 12 significant relationships by integrating results from 48 prior studies. For corporate governance, the independence of the board of directors and its expertise have a negative relationship with earnings management. Similar negative relationships exist between earnings management and the audit committee's independence, its size, expertise, and the number of meetings. The audit committee's share ownership has a positive effect on earnings management. For audit quality, auditor tenure, auditor size, and specialization have a negative relationship with earnings management. Auditor independence, as measured by fee ratio and total fee, is also a deterrent to earnings management.

Download full-text


Available from: Jerry W. Lin, Oct 10, 2015
632 Reads
  • Source
    • "Absentee's owners' interests are protected normally with the presence of good strong and good corporate governance as a result; resources available will be utilized to the best knowledge of the top management and board of directors. Therefore, the role of corporate governance is to comply with the relevant code in financial reporting process and compliance with the Generally Accepted Accounting principles (GAAP), International Financial reporting Standards (IFRS) and maintain the credibility of corporate financial statement (Lin & Hwang, 2010). However, governance mechanisms are supposed to increase financial performance because they provide good quality in ensuring financial reporting process. "
    [Show abstract] [Hide abstract]
    ABSTRACT: In recent years, cases of dissatisfaction from shareholders in reflection and recording of corporate financial activities, this has given rise to establishments of Audit and risk management committee and inclusion in the governance code as one of the governance mechanism for companies. It has become very serious issues of fraudulent practices by management, hence the need for audit system to signal any form of information asymmetries. This paper is purely conceptual review of past articles on corporate governance mechanism, board committees and Corporate Governance Code in Nigeria. The code defines what is needed for establishment of audit Committee by Corporations. The conceptual framework on audit and risk management committee is proposed for further study looking at Tobin q and ROA as measure of accounting and market performance respectively. © 2015, Mediterranean Center of Social and Educational Research. All rights reserved.
    Mediterranean Journal of Social Sciences 05/2015; 6(3). DOI:10.5901/mjss.2015.v6n3p206
  • Source
    • "Wright and Wright (1997) and Libby and Frederick (1990) states that the more experience an auditor in a client's particular industry, it will enhance the ability of the auditor to suspect the existence of errors and fraud in financial statements audits by doing the analytical review procedures. The study results by Lin et al. (2010) and Owhoso et al. (2002) showed that assigning an auditor industry specialization in a particular client industry, will positively benefit the client because they can keep the quality of company earning better, which at last will increase the audit quality. Furthermore, Mayangsari, Sekar (2003) found that the auditor's industry specialization give significant influence on the reliability of the company's audited financial statements allegedly as a result of high-quality audits. "
    [Show abstract] [Hide abstract]
    ABSTRACT: This study aims to investigate the influence of auditor's industry specialization, auditor's independence and audit procedures to detect fraud towards audit quality. This study applies explanatory research in which questionnaires and interviews serve as the primary data. The sample of this study is 50 public accounting firms which are registered in the Indonesian capital market. The results of this study depicted that auditor's industry specialization and auditor's independence have significant influence on the implementation of audit procedures to detect fraud, and the auditor's industry specialization, auditor's independence, and audit procedures to detect fraud have significant influence on the audit quality. Such results indicate that the measures to enhance audit quality can be taken by means of developing a competency in auditor's industry specialization, promoting auditor's independent mental attitude and implementing sufficient audit procedures to detect material fraud in a financial statements audit.
    Procedia - Social and Behavioral Sciences 12/2014; 164:271-281. DOI:10.1016/j.sbspro.2014.11.077
  • Source
    • "Moreover, Kent et al. (2010) found a negative association between audit committee size and earnings management in Australian companies. Lin and Hwang (2010), employing meta-analytic techniques to the data from nearly 48 empirical studies, also found a negative and highly significant association between audit committee size and earnings management. Xie et al. (2003) found no significant association between the number of directors on the audit committee and earnings management by using a sample of 282 US firms covering the period between 1992 and 1994. "
    [Show abstract] [Hide abstract]
    ABSTRACT: In fact, regulators and investors often criticize both audit committees and external audit about doing a poor job because the audited financial statements have been proved to be false and misleading due to recent high-profile earnings management cases in the world. However, the concern about the quality and integrity of accounting information is increasing over time and resulted in a drop in investor confidence following the collapse of some firms as a result of accounting manipulation by managers. This has made companies need to achieve significant progress to the corporate governance perform in order to recuperate the investors’ confidence in financial reporting quality. This paper proposes a conceptual framework to investigate the role of audit committee characteristics and external audit on earnings management using a sample of industrial companies listed on the Amman Stock Exchange (ASE). Evidence from prior studies suggested that audit committees and external auditors play a central role in ensuring the integrity of financial reporting process. The audit committee is perceived as a liaison between the external auditor and the board, an audit committee bridges the information asymmetry between them. While the external audit is perceived as an effective third party which helps mitigate information asymmetry and conflict of interests between management and investors.
    Australian Academy of Business and Social Sciences Conference 2014, Malaysia; 08/2014
Show more