Busy Auditors, Ethical Behavior, and Discretionary Accruals Quality in Malaysia

Karen M. Y. Lai (), Andriyawan Sasmita (), Ferdinand A. Gul (), Yee Boon Foo () and Marion Hutchinson ()
Additional contact information
Karen M. Y. Lai: Monash University
Andriyawan Sasmita: Deakin University
Ferdinand A. Gul: Deakin University
Yee Boon Foo: Monash University
Marion Hutchinson: Queensland University of Technology

Journal of Business Ethics, 2018, vol. 150, issue 4, No 16, 1187-1198

Abstract: Abstract The required professional and ethical pronouncements of accountants mean that auditors need to be competent and exercise due care and skill in the performance of their audits. In this study, we examine what happens when auditors take on more clients than they should, thus raising doubts about their ability to maintain competence and audit quality. Using 2803 observations of Malaysian companies from 2010 to 2013, we find that auditors with multiple clients are associated with lower earnings quality, proxied by total accruals and discretionary accruals. Our results demonstrate that associating client firms’ reported discretionary accruals with individual auditors, rather than their firms or offices, is important in determining audit quality. Moreover, we demonstrate that the disclosure of auditors’ signatures on their reports is useful for assessing auditor quality at the individual level, thus contributing to the debate on the usefulness of having auditor identities on reports.

Keywords: Multiple audit clients; Ethical behavior; Discretionary accruals; Audit quality (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10551-016-3152-4

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