Effects Of Audit Quality on Earnings Management during the Global Financial Crisis: An Empirical Analysis of Australian Firms

Abu MOLLIK, Monir MIR, Ron McIver, M Bepari

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This paper empirically investigates the effects of audit quality on earnings management behaviour of Australian firms, if any, during the global financial crisis (GFC). In addressing this issue, we integrate several branches of the recent literature: earnings management behaviour and the GFC and audit quality. Earnings management, being represented by the discretionary components of total accruals was estimated based on the Jones (1991) and modified Jones (Dechow, Sloan, & Sweeney, 1995; Kothari, Leone, & Wasley, 2005) models. Audit quality is represented in use of a Big-N audit firm and through audit committee characteristics. We used parametric and non-parametric tests to identify differences in earnings management for firms audited by Big-4 and non Big-4 firms. We also used panel data regression methods to analyse the impact of audit quality and the GFC on the discretionary accruals. The sample comprised of an unbalanced panel of 149 firms for the period of 2006 to 2009. We find that although Australian firms engaged in a higher level of incomedecreasing earnings management during the GFC, with the exception of audit committee independence, audit quality, in general, did not have an impact in mitigating this behaviour. This contrasts with earlier research conducted on companies in Singapore and Malaysia, which examines the impact of audit quality in light of the Asian Financial Crisis.
Original languageEnglish
Title of host publicationProceedings of the 9th Asian Business Research Conference
EditorsMd Mahbubul Hoque Bhuiyan
Place of PublicationMelbourne
PublisherWorld Business Institute
Number of pages27
ISBN (Print)9781922069399
Publication statusPublished - 2013
Event9th Asian Business Research Conference - Dhaka, Dhaka, Bangladesh
Duration: 20 Dec 201321 Dec 2013


Conference9th Asian Business Research Conference


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