Browse > Article
http://dx.doi.org/10.13106/jafeb.2021.vol8.no2.0143

Does Audit Matter in Earnings Quality of Indonesia Banks?  

MULIATI, Muliati (Accounting Department, Faculty of Economics and Business, Universitas Tadulako)
MAYAPADA, Arung Gihna (Accounting Department, Faculty of Economics and Business, Universitas Tadulako)
PARWATI, Ni Made Suwitri (Accounting Department, Faculty of Economics and Business, Universitas Tadulako)
RIDWAN, Ridwan (Accounting Department, Faculty of Economics and Business, Universitas Tadulako)
SALMITA, Dewi (Sharia Banking Department, Faculty of Economics and Islamic Business, State Islamic Institute of Palu)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.2, 2021 , pp. 143-150 More about this Journal
Abstract
This study investigates and analyzes the difference in Indonesian banks' earnings quality in the pre-audit and post-audit period. This study also investigates the difference in audit quality done by public accounting firms. This study employs time series data taken from the unaudited and audited financial statements of banks listed on the Indonesia Stock Exchange in 2012-2016. Sample selection is made by using a purposive sampling method. The population of this study is 43 banks, and after checking the data for validity and reliability, the final sample size was 26 banks. Audit quality is operationalized with the size of the auditor. Earnings quality is proxied by accruals calculated using the Beaver and Engel (1996) model. The data analysis method used in this study is the paired-sample t-test and chow test. This study shows that there is no difference in earnings quality in the pre-audit and post-audit period. This study also reveals no difference in audit quality between the big four and non-big four auditors. These findings mean that independent auditors do not play a useful role in increasing the reliability of accounting information presented by management to stakeholders. Besides, this study's results do not verify the agency theory regarding auditors' role to minimize opportunistic management behavior in preparing financial statements.
Keywords
Earnings Quality; Audit Quality; Pre-Audit; Post-Audit; Banks;
Citations & Related Records
연도 인용수 순위
  • Reference
1 Alqirem, R., Afifa, M. A., Saleh, I., & Haniah, F. (2020). Ownership structure, earnings manipulation, and organizational performance: The case of Jordanian insurance organizations. The Journal of Asian Finance, Economics and Business, 7(12), 293-308. https://doi.org/10.13106/jafeb.2020.vol7.no12.293   DOI
2 Alzoubi, E. S. S. (2016). Audit quality and earnings management: Evidence from Jordan. Journal of Applied Accounting Research, 17(2), 170-189. https://doi.org/10.1108/JAAR-09-2014-0089   DOI
3 Alzoubi, E. S. S. (2018). Audit quality, debt financing, and earnings management: Evidence from Jordan. Journal of International Accounting, Auditing and Taxation, 30, 69-84. https://doi.org/10.1016/j.intaccaudtax.2017.12.001   DOI
4 Amar, A. B. (2014). The effect of independence audit committee on earnings management: The case in French. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), 96-102. https://doi.org/10.6007/IJARAFMS/v4-i1/544   DOI
5 Amat, O., & Elvira, O. (2010). Earnings management and audit adjustments: An empirical study of listed companies. Investment Management and Financial Innovations, 7(1), 50-61. https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/3148/imfi_en_2010_01_Amat.pdf
6 Arens, A. A., Elder, R. J., & Beasley, M. S. (2014). Auditing and assurance services: An integrated approach: Includes coverage of international standards and global auditing issues, in addition to coverage of the AICPA Clarity Project, PCAOB auditing standards, the Sarbanes-Oxley Act, and Section 404 audits (15th ed.). London, UK: Pearson.
7 Balsam, S., Krishnan, J., & Yang, J. S. (2003). Auditor industry specialization and earnings quality. Auditing: A Journal of Practice & Theory, 22(2), 71-97. https://doi.org/10.2308/aud.2003.22.2.71   DOI
8 Beatty, A., Chamberlain, S. L., & Magliolo, J. (1995). Managing financial reports of commercial banks: The influence of taxes, regulatory capital, and earnings. Journal of Accounting Research, 33(2), 231. https://doi.org/10.2307/2491487   DOI
9 Beaver, W. H., & Engel, E. E. (1996). Discretionary behavior with respect to allowances for loan losses and the behavior of security prices. Journal of Accounting and Economics, 22(1-3), 177-206. https://doi.org/10.1016/S0165-4101(96)00428-4   DOI
10 Choudhary, P., Merkley, K. J., & Schipper, K. (2018). The last chance to improve financial reporting reliability: Evidence from recorded and waived audit adjustments. SSRN Electronic Journal, 21(06). https://doi.org/10.2139/ssrn.3112957   DOI
11 Christiani, I., & Nugrahanti, Y. W. (2014). The effect of audit quality on earnings management. Journal of Accounting and Finance, 16(1), 52-62. https://doi.org/10.9744/jak.16.1.52-62   DOI
12 DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183-199. https://doi.org/10.1016/0165-4101(81)90002-1   DOI
13 Dopuch, N., & Simunic, D. (1980). The nature of competition in the auditing profession: A descriptive and normative view. Regulation and the Accounting Profession, 34(2), 283-289. https://core.ac.uk/reader/234624640
14 Henry, T. F., & Holtzman, M. P. (2006). Critical accounting policy disclosures for financial institutions: A review of current practice, culled from 69 financial institutions' 2004 disclosures. Bank Accounting & Finance, 19(3), 14-23.
15 Gray, G. L., Turner, J. L., Coram, P. J., & Mock, T. J. (2011). Perceptions and misperceptions regarding the unqualified auditor's report by financial statement preparers, users, and auditors. Accounting Horizons, 25(4), 659-684. https://doi.org/10.2308/acch-50060   DOI
16 Grein, B. M., & Tate, S. L. (2011). Monitoring by auditors: The case of public housing authorities. The Accounting Review, 86(4), 1289-1319. https://doi.org/10.2308/accr-10041   DOI
17 Hasanah, U., & Suzan, L. (2015). Analysis of comparative earings quality pre and post-audit adjustment: Comparative study of banking firms listing on the Indonesia Stock Exchange in 2004-2013 period. E-Proceeding of Management, 2(1), 234-245.
18 Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X   DOI
19 Jin, J., Kanagaretnam, K., & Lobo, G. J. (2018). Discretion in bank loan loss allowance, risk taking and earnings management. Accounting & Finance, 58(1), 171-193. https://doi.org/10.1111/acfi.12210   DOI
20 Kanagaretnam, K., Lim, C. Y., & Lobo, G. J. (2010). Auditor reputation and earnings management: International evidence from the banking industry. Journal of Banking & Finance, 34(10), 2318-2327. https://doi.org/10.1016/j.jbankfin.2010.02.020   DOI
21 Nelson, M. W. (2006). Ameliorating conflicts of interest in auditing: Effects of recent reforms on auditors and their clients. Academy of Management Review, 31(1), 30-42. https://doi.org/10.5465/amr.2006.19379622   DOI
22 Lee, H. A., & Choi, W. W. (2016). Allowance for uncollectible accounts as a tool for earnings management: Evidence from South Korea. International Journal of Accounting & Information Management, 24(2), 162-184. https://doi.org/10.1108/IJAIM-06-2015-0040   DOI
23 Lennox, C., Wang, Z. T., & Wu, X. (2018). Earnings management, audit adjustments, and the financing of corporate acquisitions: Evidence from China. Journal of Accounting and Economics, 65(1), 21-40. https://doi.org/10.1016/j.jacceco.2017.11.011   DOI
24 Lennox, C., Wu, X., & Zhang, T. (2016). The effect of audit adjustments on earnings quality: Evidence from China. Journal of Accounting and Economics, 61(2-3), 545-562. https://doi.org/10.1016/j.jacceco.2015.08.003   DOI
25 Nguyen, T. L. H., Le, T. H. P., Dao, N. M., & Pham, N. T. (2020). Factors affecting enterprises that apply the International Financial Report Standards (IFRS): A case study in Vietnam. The Journal of Asian Finance, Economics and Business, 7(12), 409-422. https://doi.org/10.13106/jafeb.2020.vol7.no12.409   DOI
26 Nicoletti, A. (2018). The effects of bank regulators and external auditors on loan loss provisions. Journal of Accounting and Economics, 66(1), 244-265. https://doi.org/10.1016/j.jacceco.2018.05.003   DOI
27 Nindita, C., & Siregar, S. V. (2013). Analysis of the effect of public accounting firm size on audit quality in Indonesia. Journal of Accounting and Finance, 14(2), 91-104. https://doi.org/10.9744/jak.14.2.91-104
28 Salehi, M., & Azary, Z. (2009). Fraud detection and audit expectation gap: Empirical evidence from Iranian bankers. International Journal of Business and Management, 3(10), p65. https://doi.org/10.5539/ijbm.v3n10p65   DOI
29 Ozili, P. K. (2017). Bank earnings smoothing, audit quality and procyclicality in Africa: The case of loan loss provisions. Review of Accounting and Finance, 16(2), 142-161. https://doi.org/10.1108/RAF-12-2015-0188   DOI
30 Robb, S. W. G. (1998). The effect of analysts' forecasts on earnings management in financial institutions. The Journal of Financial Research, 21(3), 315-331. https:/doi.org/10.1111/j.1475-6803.1998.tb00688.x   DOI
31 Slaheddine, T., & Fakhfakh, H. (2017). Impact of 2008 financial crisis on earnings quality :IFRS and US GAAP differential case of France and United States. International Journal of Accounting Research, 05(02), 155-163. https://doi.org/10.4172/2472-114X.1000155   DOI
32 Tandiontong, M. (2016). Audit quality and its measurement. Jakarta, Indonesia: Alfabeta.
33 Tran, Q. T., Lam, T. T., & Luu, C. D. (2020). Corporate governance and earnings management: A study of Vietnamese listed banks. The Journal of Asian Finance, Economics, and Business, 7(12), 389-395. https://doi.org/10.13106/jafeb.2020.vol7.no12.389   DOI
34 Wibowo, A. S., & Ghozali, I. (2017). Factors affecting external audit costs with litigation risk as intervening variables. Diponegoro Journal of Accounting, 6(4), 275-284. https://ejournal3.undip.ac.id/index.php/accounting/article/view/18680