THE EFFECT OF AUDITING ON REAL EARNINGS MANAGEMENT
Keywords:
Earnings Management, Auditing, Audit Firm SizeAbstract
This research aims to investigate the effect of auditing on real earnings management by focusing on the size of audit firms vis-à-vis abnormally low discretionary expenses. The data were collected from financial reports of Thai listed companies in SET from 2014 – 2017 and the quantitative technique, viz, regression analysis was applied for hypothesis testing. The findings indicate that the abnormally discretionary expenses are less in firms audited by Big 4. The findings are in line with the argument proposed in the literature, in which big audit firms provide high audit quality due to their reputation and expertise. Therefore, this type of audit firm is likely to reduce earnings management motivation. However, the additional analysis did not find any significant links between big audit firms and sale manipulation or production manipulation, the alternative proxies of real earnings manipulation. This implies that the same set of governance cannot curb all choices of real earnings management. Therefore, the findings in this research are crucial and might be of interest to regulators. It can be implemented as essential information to help them designing proper governance for individual choices of earnings management.
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