Auditing Quality Effect on Ban Earnings Management: Evidence from Jordan

Abstract

The research investigates in the existence of Earnings Management practices in the industrial public companies listed in Amman Stock Exchange, and tests the impact of auditing quality characteristics (the audit office size, the connection with other global offices, the client retention period, the auditing fees and the specialty in client's industry) on Earnings Management practices. To achieve these objectives, the researcher used several statistical methods. These methods include the (Binomial Test) to test the first main hypothesis, the (Binary Logit) to test the other main hypotheses. The most important conclusion of the study was that the industrial public companies listed in Amman Stock Exchange have practiced Earnings Management each year in the study period (2001-2006) with some variations during those years. However, the most significant variation in practice has been between 2005 & 2006, where 2005 shows the least severe practice (2%), compared to 2006 which shows the most severe practice (62%). Furthermore, the researcher concludes that there is a significant effect of each characteristic of audit quality (as mentioned above) on Earnings Management practices. An exclusion, the connection with other global offices. Based on the previous results the researcher suggested several recommendations and the most important one was that financial report users should be educated about earnings management in general, and the investors in particular, and its effects on investment decisions.