nach oben

Journal of Management and Governance

Erschienen in:

30.11.2017

Earnings management and audit quality: stakeholders’ perceptions

verfasst von: Yasser Barghathi, David Collison, Louise Crawford

Erschienen in: Journal of Management and Governance | Ausgabe 3/2018

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This paper examines the perceptions of Libyan Commercial Banks’ (LCBs) stakeholders regarding the role of the external auditor in relation to earnings management (EM). A total of 28 semi-structured interviews were carried out with a range of LCB stakeholders comprising preparers of financial statements, users, regulators and academics. A questionnaire survey of stakeholders which yielded 102 Responses (response rate 53%) was also carried out. A variety of views were held which varied to some extent according to stakeholder group. A widely held perception amongst interviewees was that the auditor has the ability to detect EM practices but may not be able to prevent it. However questionnaire respondents were, in aggregate, more confident of the auditor’s ability to deter EM due to the influence of the audit report. The paper provides insights into stakeholders’ perceptions of the quality of bank audits. The findings are of particular relevance to regulators, and specifically, the Central Bank of Libya. Perceptions of audit quality raise questions about its guidance and regulations especially in connection with audit firm rotation. Perceptions of audit quality, and therefore, of the credibility of financial statements should be of interest to all stakeholders. The importance of the banking sector for society has been amply demonstrated in recent years. A well-functioning audit function is a key component of its regulation. To the best of our knowledge, this paper is the first to examine issues related to banks’ audit quality and audit firm rotation in Libya.

Vorheriger Artikel The role of weighting in corporate governance ratings

Nächster Artikel Looking at the IPO from the “top floor”: a literature review

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

Before 1952 when Libya gained its independence, there was no national accounting body nor accounting firms, business firms at that time were served by foreign accounting firms from Italy and UK (Ahmad and Gao 2004).

During the 1950s and 1960s, most of the accounting firms which worked in Libya were either British or American; Libyan accounting firms have existed only since 1970 (Mahmud and Russell 2003).

This situation still remains the case, and it may of course be even worse. As with other Libyan institutions, the LAAA is having to cope with the disruption caused by the Libyan revolution and its aftermath.

The accounting education system was primarily based on UK and US systems; therefore, it is logical that the accounting profession is influenced by both UK and US practices. Practitioners are the products of the education system as emphasised by Ahmad and Gao (2004) who suggest that the educational system is the first stage in the qualifying accountants process.

Article 82 of the law requires the Central Bank of Libya to maintain a register of external auditors who are capable of auditing and inspecting banks’ accounts.

Some scholars, according to Gong (2009), argue that “auditing has strong anticorruption functions” due to the nature of audit work which puts the auditors in a position to uncover and deter potentially illegal or immoral behaviour.

The law has not defined what approved accounting standards are. Financial reporting in Libya is largely influenced by the legal system; in particular the Libyan mercantile law, income tax law, and banking law for commercial banks, are considered to be the most important legal factors that have shaped accounting practices in Libya (Shareia 2014).

See for example, Corbella et al. (2015) employed two different measures of EM to test for audit quality.

Means and standard deviations are, strictly speaking, not appropriate as measures of ordinal data, but their use is widespread and they arguably have reasonable information content subject to assumptions made about the intervals in the ordinal data.

Threatening that he/she may issue a qualified opinion.

According to the CBL’s regulation, an auditor can only be assigned for maximum 2 years for the same bank. However, the appointment may be renewed after a 1 year audit by another auditor.

There are, in Libya, two reports an auditor has to submit to the general assembly; a detailed report which normally consists of auditor’s remarks on the internal control system and any mistaken transactions, the other is the opinion report.

Trust can broadly be defined as “a mechanism that can reduce uncertainty in context of interaction and facilitate the functioning of organizational systems” (Malsch and Gendron 2009, p. 739).

Ahmad, N. S., & Gao, S. S. (2004). Changes, problems and challenges of accounting education in Libya. Accounting Education, 13(3), 365–390.CrossRef

Akers, M., Giacomino, D. E., & Bellovary, J. L. (2007). Earnings management and its implications. The CPA Journal, 77, 64–69.

Anis, A. (2014). Auditors’ perceptions of audit firm rotation impact on audit quality in Egypt. Accounting & Taxation, 6, 105–120.

Ascioglu, A., Hegde, S., Krishnan, G., & McDermott, J. (2012). Earnings management and market liquidity. Review of Quantitative Finance and Accounting, 38, 257–274.CrossRef

Bovens, M. (2007). Analysing and assessing accountability: A conceptual framework. European Law Journal, 13, 447–468.CrossRef

Bruynseels, L., Knechel, W. R., & Willekens, M. (2011). Auditor differentiation, mitigating management actions, and audit-reporting accuracy for distressed firms. Auditing: A Journal of Practice and Theory, 30, 1–20.CrossRef

Cameran, M., Prencipe, A., Trombetta, M. (2008). Earnings management, audit tenure and auditor changes: Does mandatory auditor rotation improve audit quality?, Working Paper, University Boncconi.

Carcello, J., & Nagy, A. (2004). Audit firm tenure and fraudulent financial reporting. Auditing: A Journal of Practice and Theory, 23(2), 55–69.CrossRef

Corbella, S., Florio, C., Gotti, G., & Mastrolia, S. (2015). Audit firm rotation, audit fees and audit quality: The experience of Italian public companies. Journal of International Accounting, Auditing and Taxation, 25, 46–66.CrossRef

Cotter, D. (2012). Advanced financial reporting: A complete guide to IFRS. Harlow: Financial Times Prentice Hall.

DeAngelo, L. (1981). Auditor size and auditor quality. Journal of Accounting and Economics, 3, 183–199.CrossRef

Dickins, D., Fay, R. G., & Reisch, J. (2014). Measuring and communicating audit quality: The new AQIs. The CPA Journal, 84(9), 16.

Dunn, K., & Mayhew, B. (2003). Audit firm industry specialization and client disclosure quality. Review of Accounting Studies, 9, 35–58.CrossRef

El-Firjani, E. (2010). Investigating the corporate accounting regulation and factors influencing the adoption of International Accounting Standards (IAS) in Libya. Ph.D. Liverpool John Moores University.

Ewelt-Knauer, C., Gold, A., & Pott, C. (2012). What do we know about mandatory audit firm rotation?. Edinburgh: Institute of Chartered Accountants of Scotland.

Firth, M., Rui, O., & Wu, X. (2012). How do various forms of auditor rotation affect audit quality? Evidence from China. The International Journal of Accounting, 47, 109–138.CrossRef

Frankel, R. M., Johnson, M. F., & Nelson, K. K. (2002). The relation between auditors’ fees for non-audit services and earnings management. The Accounting Review, 77, 71–105.CrossRef

Gong, T. (2009). Audit for accountability in China: An incomplete mission. Australian Journal of Public Administration, 68, 5–16.CrossRef

Gray, I., Manson, S., & Crawford, L. (2015). The audit process: principles, practice and cases. Hampshire: Cengage Learning EMEA.

Habbash, M., & Alghamdi, S. (2015). The perception of earnings management motivations in Saudia Arabia. Journal of Accounting in Emerging Economies., 5, 122–147.CrossRef

Habbash, M., Sindezingue, C., & Salama, A. (2013). The effect of audit committee characteristics on earnings management: Evidence from the United Kingdom. International Journal of Disclosure and Governance, 10, 13–38.CrossRef

Jackson, A. B., Moldrich, M., & Roebuck, P. (2008). Mandatory audit firm rotation and audit quality. Managerial Auditing Journal, 23(5), 420–437.CrossRef

Johnson, V., Khurana, I., & Reynolds, J. (2002). Audit-firm tenure and the quality of financial reports. Contemporary Accounting Research, 19(4), 637–660.CrossRef

Jones, M. J. (Ed.). (2011). Creative accounting, fraud, and international accounting scandals. Wiley: Chichester, West Sussex.

Kilgore, A., Harrison, G., & Radich, R. (2014). Audit quality: What’s important to users of audit services. Managerial Auditing Journal, 29, 776–799.CrossRef

Kim, H., Lee, H., & Lee, J. E. (2015). Mandatory audit firm rotation and audit quality. The Journal of Applied Business and Research, 31, 1089–1106.

Knechel, W., Krishnan, V., Pevzner, M., Shefchik, L. B., & Velury, U. K. (2013). Audit quality: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 32, 385–421.CrossRef

Kramer, S., Georgakopoulos, T., Sotiropoulos, G., & Vasileiou, K. (2011). Audit firm rotation, audit firm tenure and earnings conservatism. International Journal of Business and Management, 6, 44–57.

Kribat, M. 2009. Financial disclosure practices in developing countries: evidence from the Libyan banking sector. Ph.D. Thesis, School of Accounting and Finance, University of Dundee.

Krishnan, G. V. (2003). Does big 6 auditor industry expertise constrain earnings management? Accounting Horizons, 17, 1–16.CrossRef

Laffan, B. (2003). Auditing and accountability in the European Union. Journal of European Public Policy, 10, 762–777.CrossRef

Libby, R., Rennekamp, K., & Seyberts, N. (2015). Regulation and the interdependent roles of managers, auditors, and directors in earnings management and accounting choice. Available at SSRN, Accessed at 30 June 2015.

Libyan Government. (2005). The banking law No. 1.

Libyan Government. (2010a). Libyan commercial law No. 23.

Libyan Government. (2010b). The income tax law No. 7.

Libyan Government. (2010c). The Libyan stock market law No. 11.

Lowensohn, S., Johnson, L. E., Elder, R. J., & Davies, S. P. (2007). Auditor specialization, perceived audit quality, and audit fees in the local government audit market. Journal of Accounting and Public Policy, 26, 705–732.CrossRef

Mahmud, M. B., & Russell, A. (2003). An empirical investigation of the development of accounting education and practice in Libya, and of strategies for enhancing accounting education and accounting practice in Libya. Research in Emerging Economies, 5, 197–236.CrossRef

Malsch, B., & Gendron, Y. (2009). Mythical representations of trust in auditors and the preservation of social order in the financial community. Critical Perspectives on Accounting, 20, 735–750.CrossRef

Michas, P. N. (2011). The importance of audit profession development in emerging market countries. The Accounting Review, 86, 1731–1764.CrossRef

Ojala, H., Niskanen, M., Collis, J., & Pajunen, K. (2014). Audit quality and decision making in small companies. Managerial Auditing Journal, 29, 800–817.CrossRef

Perks, R. W. (1993). Accounting and society. London: Chapman & Hall.

Piot, C., & Janin, R. (2007). External auditors, audit committees and earnings management in France. European Accounting Review, 16, 429–454.CrossRef

Ritchie, B., & Khorwatt, E. (2007). The attitude of Libyan auditors to inherent control risk assessment. The British Accounting Review, 39(1), 39–59.CrossRef

Sawan, N., & Alsaqqa, I. (2013). Audit firm size and quality: Does audit firm size influence audit quality in the Libyan oil industry? African Journal of Business Management, 7, 213–226.

Sawan, N., & Alzeban, A. (2015). Does audit quality in Libya meet the international standards levels? International Journal of Business and Management, 10, 155–167.CrossRef

Shareia, A. (2014). The Libyan accounting profession. International Journal of Social, Behavioral, Educational, Economic, Business and Industrial Engineering, 8, 3759–3766.

Siregar, S. V., Amarullah, F., Wibowo, A., & Anggraita, V. (2012). Audit tenure, auditor rotation, and audit quality: The case of Indonesia. Asian Journal of Business and Accounting., 5, 55–74.

Smith, J. L. (2012). Investor’s perceptions of audit quality: Effects of regulatory change. Auditing: A Journal of Practice & Theory, 31, 17–38.CrossRef

Stolowy, H., & Breton, G. (2004). Accounts manipulation: A literature review and proposed conceptual framework. Review of Accounting and Finance, 3, 5–92.CrossRef

Sun, L., & Liu, G. (2013). Auditor industry specialization, board governance, and earnings management. Managerial Auditing Journal, 28, 45–64.CrossRef

Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory. London: Prentice Hall International.

White, F., & Hollingsworth, K. (1999). Audit, accountability and government. Oxford: Clarendon Press.

Zakari, M., & Menacere, K. (2012). The challenges of the quality of audit evidence in Libya. African J. Accounting, Auditing and Finance, 1, 3–24.CrossRef

Titel: Earnings management and audit quality: stakeholders’ perceptions
verfasst von: Yasser Barghathi
David Collison
Louise Crawford
Publikationsdatum: 30.11.2017
Verlag: Springer US
Erschienen in: Journal of Management and Governance / Ausgabe 3/2018
Print ISSN: 1385-3457
Elektronische ISSN: 1572-963X
DOI: https://doi.org/10.1007/s10997-017-9396-2

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 3/2018

Legitimacy theory may explain the failure of global adoption of IFRS: the case of Europe and the U.S.

Network governance in the heritage ecology

Corporate governance and social norms during financial crisis: evidence from France and Saudi Arabia

Collaboration outcomes in a public sector: impact of governance, leadership, interdependence and relational capital

Special issue on governance and accounting regulation 2018

Corporate Governance mechanisms as drivers that enhance the credibility and usefulness of CSR disclosure

Premium Partner