The Impact of Audit Quality, Audit Committee and Financial Reporting Quality: Evidence from Malaysia

Shahanif Hasan, Aza Azlina Md. Kassim and Mohamad Ali Abdul Hamid
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Shahanif Hasan: Faculty of Business and Accountancy, Universiti Selangor, 40000 Shah Alam, Malaysia,
Aza Azlina Md. Kassim: Faculty of Business and Accountancy, Universiti Selangor, 40000 Shah Alam, Malaysia,
Mohamad Ali Abdul Hamid: Putra Business School, 43400 Seri Kembangan, Selangor

International Journal of Economics and Financial Issues, 2020, vol. 10, issue 5, 272-281

Abstract: In recent decades, there has been a noticeable increase in the practice of earnings management (EM) as a proxy for financial reporting, especially real activities, with effect on the quality of financial statements. The role of the audit committee in mitigating EM remains ambiguous because of inconclusive findings. Therefore, this study examines the moderating effect of audit quality and audit committee on financial reporting quality, also known as real earnings management in Malaysian companies. The results show that corporate governance mechanism such as financial accounting expert, meeting and indicate significant results with real EM while, audit committee independence and size, shows an insignificant result on real EM. In addition, the results show that audit quality of the audit committee leads to less aggressive EM practice in real activities. The findings also show that audit quality and audit committee has a significant role in restricting the real EM. Audit quality is found to significantly moderate the relationship between audit committee with financial reporting quality proxy. Overall, this study provides a reference point for the relevant parties such as regulatory bodies, policymakers and standard setters towards improving the quality of earnings and corporate governance practices in ensuring credible accounting information.

Keywords: Audit Committee Effectiveness; Audit Quality; Real Earnings Management; Malaysia (search for similar items in EconPapers)
JEL-codes: G3 M42 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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