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Earnings management practices from the perspective of external and internal auditors Evidence from Jordan

Earnings management practices from the perspective of external and internal auditors Evidence... Purpose – The purpose of this paper is to provide evidence concerning the existence of earnings management (EM) from the perspective of external and internal auditors in Jordan. Design/methodology/approach – A specially designed questionnaire was distributed to a sample of both external and internal auditors. To analyze the data of the study, t ‐tests and ANOVA were used. Findings – The results of the study showed that external auditors believe that management engages significantly only in legitimate EM that either increases or decreases income. However, internal auditors believe that management engages in legitimate practices that only increase income. In both cases, there were significant differences between their views. There is no significant difference between large and small companies regarding EM practices. However, the characteristics of internal governance structure have a significant effect on illegitimate EM, whereas no significant effect was found on legitimate EM. Practical implications – The paper provides many recommendations, including the need to strengthen and reinforce the internal governance structure of companies and train external and internal auditors regarding EM techniques and measures of detection. Originality/value – The originality of the study is that it provides evidence about EM practices from the perspective of both external and internal auditor in a developing country. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Auditing Journal Emerald Publishing

Earnings management practices from the perspective of external and internal auditors Evidence from Jordan

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References (44)

Publisher
Emerald Publishing
Copyright
Copyright © 2009 Emerald Group Publishing Limited. All rights reserved.
ISSN
0268-6902
DOI
10.1108/02686900910919901
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to provide evidence concerning the existence of earnings management (EM) from the perspective of external and internal auditors in Jordan. Design/methodology/approach – A specially designed questionnaire was distributed to a sample of both external and internal auditors. To analyze the data of the study, t ‐tests and ANOVA were used. Findings – The results of the study showed that external auditors believe that management engages significantly only in legitimate EM that either increases or decreases income. However, internal auditors believe that management engages in legitimate practices that only increase income. In both cases, there were significant differences between their views. There is no significant difference between large and small companies regarding EM practices. However, the characteristics of internal governance structure have a significant effect on illegitimate EM, whereas no significant effect was found on legitimate EM. Practical implications – The paper provides many recommendations, including the need to strengthen and reinforce the internal governance structure of companies and train external and internal auditors regarding EM techniques and measures of detection. Originality/value – The originality of the study is that it provides evidence about EM practices from the perspective of both external and internal auditor in a developing country.

Journal

Managerial Auditing JournalEmerald Publishing

Published: Nov 28, 2008

Keywords: Earnings; External auditing; Internal auditing; Corporate governance; Jordan

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