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The impact of audit characteristics, audit fees on classification shifting: evidence from Germany

Author

Listed:
  • Muhammad Usman
  • Ernest Ezeani
  • Rami Ibrahim A. Salem
  • Xi Song

Abstract

Purpose - This paper aims to examine the relationship between audit characteristics (ACs) and audit fees on classification shifting (CS) among German-listed non-financial firms. Design/methodology/approach - Using a sample of 130 German-listed (Deutscher Aktienindex, Mid Cap dax and Small caps Index) firms from 2010 until 2019, this study investigated the impact of audit committee size, audit committee meetings, audit committee financial expertise and audit fees on CS. Findings - This study found the evidence of CS, meaning that managers misclassify recurring expenses in the income statement into non-recurring expenses to inflate core earnings. This study also found that the audit fee ratio, audit committee financial expertise and frequency of audit meetings are negatively associated with CS among German-listed firms. However, the audit committee size does not influence CS. Research limitations/implications - This study will help the board improve its internal auditing practices and provide essential information to investors to assess how ACs affect the quality of financial reporting. Originality/value - This study focused on a bank-oriented economy, i.e. Germany, with lower investor protection and low transparency. This paper documents new evidence on how ACs and audit fees impact CS among German firms, as most of the previous studies on CS mainly focused on market-oriented economies such as the UK and the USA.

Suggested Citation

  • Muhammad Usman & Ernest Ezeani & Rami Ibrahim A. Salem & Xi Song, 2022. "The impact of audit characteristics, audit fees on classification shifting: evidence from Germany," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 30(3), pages 408-426, April.
    • Handle: RePEc:eme:ijaimp:ijaim-12-2021-0252
    DOI: 10.1108/IJAIM-12-2021-0252
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    Citations

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    Cited by:

    1. Rami Salem & Ernest Ezeani & Xi Song, 2023. "The relationship between religiosity and voluntary disclosure quality: a cross-country evidence from the banking sector," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 983-1023, April.
    2. Bilal, & Komal, Bushra & Ezeani, Ernest & Usman, Muhammad & Kwabi, Frank & Ye, Chengang, 2023. "Do the educational profile, gender, and professional experience of audit committee financial experts improve financial reporting quality?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 53(C).
    3. Hatem Hatef Abdulkadhim Altaee & Saya Jamal Azeez, 2023. "Impacts of Environment-Related Technology, Structural Change, and Globalization on Greenhouse Gas Emissions: Evidence from Top Twenty Emitter Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 690-697, November.
    4. Ali Meftah Gerged & Rami Salem & Eshani Beddewela, 2023. "How does transparency into global sustainability initiatives influence firm value? Insights from Anglo‐American countries," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4519-4547, November.

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