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Audit quality and earnings management in less developed economies: the case of Saudi Arabia

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  • Murya Habbash

    (King Khalid University)

  • Salim Alghamdi

    (Taif University)

Abstract

This paper aims to determine if significant associations exist between audit quality and earnings management in less developed economies, providing their various shortcomings and differences. Five different measures of audit quality (auditor size, auditor industry specialization, auditor opinion, auditor change and timeliness of auditor report) were examined based on a sample of 337 non-financial Saudi listed firms from 2006 to 2009. The absolute value of discretionary accruals is used as a proxy for earnings management by using a cross-sectional variation of the Kothari model. The results of this research indicate that only auditor opinion indicates earnings management practice. The results support the argument that auditors are powerless in front of managerial opportunistic activities. Issues that may impair audit quality in Saudi Arabia are discussed.

Suggested Citation

  • Murya Habbash & Salim Alghamdi, 2017. "Audit quality and earnings management in less developed economies: the case of Saudi Arabia," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(2), pages 351-373, June.
    • Handle: RePEc:kap:jmgtgv:v:21:y:2017:i:2:d:10.1007_s10997-016-9347-3
    DOI: 10.1007/s10997-016-9347-3
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    3. Harman Preet Singh & Hilal Nafil Alhulail, 2023. "Information Technology Governance and Corporate Boards’ Relationship with Companies’ Performance and Earnings Management: A Longitudinal Approach," Sustainability, MDPI, vol. 15(8), pages 1-24, April.
    4. Le, Ha Thi Thu & Tran, Ha Giang & Vo, Xuan Vinh, 2021. "Audit quality, accruals quality and the cost of equity in an emerging market: Evidence from Vietnam," International Review of Financial Analysis, Elsevier, vol. 77(C).
    5. Mohammad Abedalrahman Alhmood & Hasnah Shaari & Redhwan Al-dhamari, 2022. "Audit Partner Characteristics and Real Earnings Management Practices in Jordan," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 185-200.
    6. Sarhan, Ahmed A. & Ntim, Collins G. & Al-Najjar, Basil, 2019. "Antecedents of audit quality in MENA countries: The effect of firm- and country-level governance quality," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 35(C), pages 85-107.
    7. Alrashidi, Rasheed & Baboukardos, Diogenis & Arun, Thankom, 2021. "Audit fees, non-audit fees and access to finance: Evidence from India," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 43(C).
    8. Ines Ben Jazia & Maali Kachouri, 2024. "Board Size as a Mediator in the Relationship Between Corporate Social Responsibility and Audit Quality: Insights from Europe," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 91-112.
    9. Ibrahim Khalifa Elmghaamez & Jacinta Nwachukwu & Collins G. Ntim, 2024. "ESG disclosure and financial performance of multinational enterprises: The moderating effect of board standing committees," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3593-3638, July.
    10. Tikkos Sitanggang & Titik Aryati & Bambang Pamungkas & Sukrisno Agoes, 2022. "The role of the audit committee to increase the influence of audit quality and internal control on earnings management," Technium Social Sciences Journal, Technium Science, vol. 29(1), pages 399-418, March.
    11. Mujeeb Saif Mohsen Al-Absy & Redhwan Al-Dhamari & Hamid Abdulkhaleq Hasan Al-Wesabi & Khaldoon Albitar, 2024. "Are country-level political uncertainty and power distance important to the CSR-audit report lag nexus? Evidence from the GCC region," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 14(3), pages 483-515, July.

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