Determinants of audit quality in Philippine audit firms: An earnings management approach

Date of Publication

2008

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Accountancy

Subject Categories

Accounting

College

Ramon V. Del Rosario College of Business

Department/Unit

Accountancy

Defense Panel Member

Cynthia C. Cudia
McRey Banderlipe

Abstract/Summary

This paper examines the relationship between audit quality and several audit firm-specific characteristics using univariate econometric analyses. With performance-matched modified Jones discretionary accruals as a measure of earnings management, which in turn, is an indirect proxy for audit quality, we determine the direction and degree of effect of audit firm size, compensation, industry specialization and tenure on audit quality, and verify whether this effect varies across alternative model specifications and sample variations. We estimate this model for a sample of 68 corporations listed in the Philippine Stock Exchange for 2005 to 2007 using the Generalized Least Squares technique.

We find that bigger audit firms are associated with overstated earnings reports, as do higher compensation. However, the relative amount of audit fees from the client, rather than the absolute, is a stronger determinant of audit quality, and we find that audit quality actually heightens the more important the client is a source of revenue for the firm. Industry-specializing audit firms are more effective in constraining the overstatement, but not the understatement of earnings. Finally, longer auditor tenure induces the audit firm to be biased in favor of higher income for the client."

Abstract Format

html

Language

English

Format

Print

Accession Number

TU13111

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

159, xxvi leaves : ill. ; 28 cm.

Keywords

Auditing--Quality control--Standards--Philippines; Accounting--Quality control--Standards-- Philippines

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