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Earnings management and the audit opinion: evidence from Malaysia

Author

Listed:
  • Shireenjit Johl
  • Christine A. Jubb
  • Keith A. Houghton

Abstract

Purpose - This study aims to examine auditor reporting behaviour in the presence of aggressive earnings management (EM) in the context of the Asian Economic Crisis as it affected Malaysia. In the vein of Bartov, Gul and Tsui, the interaction between discretionary or abnormal accruals and audit quality (AQ), as indicated by auditor size and auditor industry specialisation, is examined. Design/methodology/approach - A logistic regression model adapted from various prior studies is utilised to test the hypotheses. Findings - As per earlier findings using Western data, Big 5 auditors in Malaysia appear to qualify more frequently than their non‐Big 5 counterparts when high levels of abnormal accruals are present. However, the interaction between auditor industry specialisation and abnormal accruals is not significant in predicting the incidence of qualification. Originality/value - This study extends the current literature on AQ differentiation and specifically it attempts to address the gaps in the literature with respect to auditor reporting behaviour in the presence of aggressive EM. In addition, this study provides additional evidence on Big 5/industry specialist quality differentiation in an emerging market (an under‐researched area), Malaysia, arguably with less transparent and weaker governance structures than the developed economies such as the USA, UK, and Australia.

Suggested Citation

  • Shireenjit Johl & Christine A. Jubb & Keith A. Houghton, 2007. "Earnings management and the audit opinion: evidence from Malaysia," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 22(7), pages 688-715, July.
  • Handle: RePEc:eme:majpps:02686900710772591
    DOI: 10.1108/02686900710772591
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    Citations

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    Cited by:

    1. Xingqiang Du & Yiqi Zhang & Shaojuan Lai & Hexin Tao, 2024. "How Do Auditors Value Hypocrisy? Evidence from China," Journal of Business Ethics, Springer, vol. 191(3), pages 501-533, May.
    2. Ahmed A. Diab & Samir I. Abdelazim & Aref M. Eissa & Eid Mahmoud Abozaid & Mona Mohamed Elshaabany, 2021. "The Impact of Client Size and Financial Performance on Audit Opinion: Evidence from a Developing Market," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 10, January.

    More about this item

    Keywords

    Auditing; Earnings; Malaysia; Quality;
    All these keywords.

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