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.

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    • "Generally, audit committees provide two important advantages to the firms, namely independence and efficiency (Menon and Deahl 1994). As a company establishes an audit committee in its corporate structure, the credibility of the company from the investors' perspective raises and the possibility of misappropriate actions reduces (Lin and Hwang 2010). Early research on audit committee focuses on the impact of the presence of audit committees on financial reporting quality. "
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    DESCRIPTION: Lack of corporate governance has been addressed as one of the main reasons for financial scandals and crisis experienced during 2000’s, followed by revision of several institutions including audit committee and shift of the focus onto how audit committees’ governance quality could be improved, especially for financial firms where informational asymmetry increases with complexity of operations. Using a unique selection bias free data set, this study investigates the impact of membership characteristics on the governing quality of the audit committee measured by operational loss in Turkish Banking Industry. Results imply that, gender diversification and multiple directorships of the members improve the governance effectiveness while past auditing experience does not make significant improvement after controlling for industry experience. Differences in cultural background and insufficient funding of the committee could be detrimental to the effectiveness of banks’ audit committees at mitigating operational risk. Trends of the member characteristics over the period of 2006-2012 suggest that the 2008 turbulence has mainly had a disciplinary effect towards better audit committees in Turkish banking sector.
    Full-text · Research · Oct 2015
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    • "Lin et al. (2006) find that the occurrence of earnings restatement is negatively correlated with the size of audit committee. Similarly, Lin and Hwang (2010) document a negative correlation between audit committee size and earnings management. Thus, it is imperative to include these standard governance attributes as control variables to ascertain the real effect of the other variables. "

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    • "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. "
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    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.
    Preview · Article · May 2015 · Mediterranean Journal of Social Sciences
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