Earnings management and audit quality

stakeholders’ perceptions

Yasser Barghathi (Lead / Corresponding author), David Collison, Louise Crawford

    Research output: Contribution to journalArticle

    84 Downloads (Pure)

    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.

    Original languageEnglish
    Number of pages31
    JournalJournal of Management and Governance
    DOIs
    Publication statusE-pub ahead of print - 30 Nov 2017

    Fingerprint

    Audit quality
    Stakeholders
    Earnings management
    Audit firms
    Commercial banks
    Audit
    Auditors
    Financial statements
    Guidance
    Central bank
    Questionnaire
    Functioning
    External auditor
    Banking sector
    Response rate
    Structured interview
    Credibility
    Questionnaire survey
    Management practices
    Audit reports

    Keywords

    • Accountability
    • Audit firm rotation
    • Audit quality
    • Banks
    • Earnings management
    • Perceptions
    • Qualitative
    • Stakeholders

    Cite this

    @article{f8dd6e02f093430a98149fff7c0be834,
    title = "Earnings management and audit quality: stakeholders’ perceptions",
    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.",
    keywords = "Accountability, Audit firm rotation, Audit quality, Banks, Earnings management, Perceptions, Qualitative, Stakeholders",
    author = "Yasser Barghathi and David Collison and Louise Crawford",
    note = "This work was supported by the National Institute of Dental and Craniofacial Research K99/R00 (grant DE022378), the Robert Wood Johnson Foundation (grant 72429; A.B.), the National Institutes of Health (grant R01 DE023575, R.A.C.; R37 grants DE-08559 and DE-016148, J.C.M.; AR067739 R01, M.M.D.), and the Ghana Cleft Foundation (G001, L.J.J.G.).",
    year = "2017",
    month = "11",
    day = "30",
    doi = "10.1007/s10997-017-9396-2",
    language = "English",
    journal = "Journal of Management and Governance",
    issn = "1385-3457",
    publisher = "Springer Verlag",

    }

    Earnings management and audit quality : stakeholders’ perceptions. / Barghathi, Yasser (Lead / Corresponding author); Collison, David; Crawford, Louise.

    In: Journal of Management and Governance, 30.11.2017.

    Research output: Contribution to journalArticle

    TY - JOUR

    T1 - Earnings management and audit quality

    T2 - stakeholders’ perceptions

    AU - Barghathi, Yasser

    AU - Collison, David

    AU - Crawford, Louise

    N1 - This work was supported by the National Institute of Dental and Craniofacial Research K99/R00 (grant DE022378), the Robert Wood Johnson Foundation (grant 72429; A.B.), the National Institutes of Health (grant R01 DE023575, R.A.C.; R37 grants DE-08559 and DE-016148, J.C.M.; AR067739 R01, M.M.D.), and the Ghana Cleft Foundation (G001, L.J.J.G.).

    PY - 2017/11/30

    Y1 - 2017/11/30

    N2 - 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.

    AB - 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.

    KW - Accountability

    KW - Audit firm rotation

    KW - Audit quality

    KW - Banks

    KW - Earnings management

    KW - Perceptions

    KW - Qualitative

    KW - Stakeholders

    U2 - 10.1007/s10997-017-9396-2

    DO - 10.1007/s10997-017-9396-2

    M3 - Article

    JO - Journal of Management and Governance

    JF - Journal of Management and Governance

    SN - 1385-3457

    ER -