Impact of Audit Quality on Earnings Management: Evidence from Iran

The aim of the research presented in this paper is to provide empirical evidence on the impact of Audit Quality on Discretionary Accruals, as a measure of Earnings Management, in Iranian listed firms. Multiple regression analysis is used in the study in estimating the relationship between the Audit Quality and firm’s Discretionary Accruals. Using three different measures of Audit Quality (i.e. Auditor size, Auditor industry Specialization and Auditor Independence) and based on a sample of 90 non-financial Iranian listed firms from 2004 to 2009, the results reveal that Discretionary Accruals are negatively related to Auditor size and Auditor industry Specialization. Our findings also support our hypothesis of the negative association between auditor independence and Discretionary Accruals. Overall, this study provides evidence that firms which are audited by high quality auditors are more likely to have less Discretionary accruals, a finding that is consistent with prior research.

Audit Quality, Earnings Management, Discretionary Accruals