ESC
Web of Science
Entrepreneurship and Sustainability Issues Open Access Q1
Scopus - coverage starting with 2017 material
Received: 2020-01-15  |  Accepted: 2020-05-10  |  Published: 2020-06-30

Title

The role of auditor characteristics: earnings management and audit committee effectiveness


Abstract

This study aims to analyze the moderating effect of auditor characteristics on the relationship between audit committee effectiveness and earnings management. Mechanisms of good corporate governance can limit and control the opportunistic actions of management. A highly effective audit committee will reduce the prevalence of earnings management. In addition to the audit committee as an internal party that oversees the credibility of financial statements, it is also necessary to supervise external parties, through the use of external auditors. With expectations of reducing earnings manipulation, this study examines the effects of the combination of an effective audit committee and an independent auditor. The research sample selection uses a purposive judgmental non-probability sampling technique. The sample obtained is 754 firm years, consisting of three years of company observations in the Indonesian capital market between 2016 and 2018, except those in the financial sector. Earnings management is measured by accrual value using a modified Jones model. The independent variable of the study is the effectiveness of the audit committee (EFAC) which will be assessed using the DeZoort index. The results of the empirical testing support the research hypothesis; the more effective the audit committee is and the longer the external audit period is, the more prevalent earnings management will be. In addition, the more effective the audit committee is, coupled with the use of one of the big four auditors, the less prevalent earnings management will be, which means the auditor's reputation also strengthens the relationship between the effectiveness of the audit committee and earnings management. Further, the moderating effect of auditor specialization on the influence of the audit committee on earnings manipulation did not provide significant results.


Keywords

earnings management, specialist auditor, audit committee, audit quality, governance


JEL classifications

M41 , M42 , M49


URI

http://jssidoi.org/jesi/article/583


DOI


Pages

3242-3252


Funding


This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License

Authors

Eriandani, Rizky
University of Surabaya, Surabaya, Indonesia https://www.ubaya.ac.id
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Pirzada, Kashan
University Utara Malaysia, Changlun, Malaysia http://www.uum.edu.my
Articles by this author in: CrossRef |  Google Scholar

Kurniawan, Melly Karina
University of Surabaya, Surabaya, Indonesia https://www.ubaya.ac.id
Articles by this author in: CrossRef |  Google Scholar

Journal title

Entrepreneurship and Sustainability Issues

Volume

7


Number

4


Issue date

June 2020


Issue DOI


ISSN

ISSN 2345-0282 (online)


Publisher

VšĮ Entrepreneurship and Sustainability Center, Vilnius, Lithuania

Cited

Google Scholar

Article views & downloads

HTML views: 621  |  PDF downloads: 154

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