THE ROLE OF AUDITORS IN DETECTING CREATIVE ACCOUNTING: SINGAPOREAN AND AUSTRALIAN EVIDENCE

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Abstract

This study examines the association between the magnitude of earnings management and two characteristics of auditor value - auditor independence and auditor quality. As earnings management, auditor independence and auditor quality are unobservable the study uses absolute discretionary accruals, the ratio of non-audit to total fees and auditor industry specialisation as respective proxies. This study finds no empirical evidence that non-audit services are associated with firms’ discretionary accruals. This result suggests that the provision of non-audit services by the incumbent auditor does not compromise independence. This study presents evidence of a negative association between auditor specialization and the earnings management indicator. This finding infers that the magnitude of earnings management amongst firms engaging the services of a specialist is significantly lower than firms purchasing audit services from a non-specialist auditor.

Keywords: Earnings Management, Auditor Independence, Auditor Quality

How to cite this paper: Rusmin, R. (2011). The role of auditors in detecting creative accounting: Singaporean and Australian evidence. Corporate Ownership & Control, 8(3), 124-144. https://doi.org/10.22495/cocv8i3p10