The Effect of Audit Fee and Audit Firm Size on Earnings Management

GAO, HANJI (2017) The Effect of Audit Fee and Audit Firm Size on Earnings Management. [Dissertation (University of Nottingham only)]

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Abstract

Earnings are the most important number in financial reporting and they can provide information that is useful to managers and investors. However, in order to show good performance of companies, managers always manage earnings to provide untrue financial reporting in order to maximum their private interest. This can reduce earnings quality and damage shareholders also investors’ benefits. In this case, audit plays a vital role in constrain earnings management, which can provide independent assurance of the credibility of financial information and contribute to efficient function of capital market allocation. Among audit services, audit fee and audit firm size are widely focused by investors and regulators.

This study attempts to observe the effect of audit fee and audit firm size on earnings management. Some theories are showed at first to underlay this dissertation. According to prior studies about relationship between audit fee, audit firm size and earnings management, two hypotheses are put forward in this study. Using 634 listed companies of non-financial industries out of the total 1320 from 2011 to 2016, cross-sectional modified-Jones model is selected to calculate the discretionary accrual as proxy for earnings management. From analysis, it is found that earnings management has no significant relationship with audit fee finally. However, audit firm size is positively and significantly associated with earnings management. According to these findings, this paper also provides some recommendation to listed companies and audit firms.

Item Type: Dissertation (University of Nottingham only)
Depositing User: Gao, Hanji
Date Deposited: 09 Apr 2018 14:43
Last Modified: 10 Apr 2018 15:12
URI: http://eprints.nottingham.ac.uk/id/eprint/45786

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