Effect of Audit Quality on Earnings Management Practices

Abstract

Purpose: The aim of the study was to assess the effect of audit quality on earnings management practices. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: Research indicates that higher audit quality is associated with reduced earnings management practices. High-quality audits lead to improved financial reporting, fraud detection, and lower costs of capital. Market reactions are positive when reputable audit firms are involved. However, outcomes may vary by industry and country, depending on regulatory and institutional factors. Implications to Theory, Practice and Policy:  Agency theory, signaling theory and information risk and auditor reputation theory may be use to anchor future studies on assessing the effect of audit quality on earnings management practices. Audit firms should invest in ongoing training and professional development programs to enhance the skills and knowledge of auditors. Regulatory authorities should continue to strengthen their oversight of the audit profession. This includes periodically reviewing and updating auditing standards, enforcing compliance with auditing regulations, and imposing penalties for audit failures.