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Jurnal Akuntansi dan Auditing Indonesia


Auditor independence, earnings managment, auditor specialization, proxy for auditor independence, proxy for control variables.






    This study empirically examines the relation between two dimensions of
    auditor quality, auditor independence and auditor specialization, and the level
    of discretionary accruals, a proxy for earnings management. This study focuses
    on earnings management in response to mounting pressure amongst investors,
    policy makers and corporate governance reformists for mechanism to curb
    excessice opportunistic behavior amongst corporate management. Auditor independence and auditor specialization
    are the epicentre of this analysis as these two factors are considered to be
    key determinants of earnings management. As earnings management, auditor
    independence and auditor specialization are unobservable, I use absolute
    discretionary accruals, the ratio of non-audit to total fees and auditor
    industry market share as respective proxies.

    Using 2004 data hand collected from 325 Australian publicly listed firms I
    find no significant association between
    the non-audit/total fee ratio and the magnitude of earnings management. Thus,
    this result suggests the provision of non-audit services by the incumbent
    auditor does not compromise independence and, therefore, the auditor’s ability
    to constraint earnings management. This study also fail to find a firm engaging
    an audit firm with industry specialization skills has significantly lower levels
    of absolute discretionary accruals than a firm using the services of a
    non-specialist. The main findings of this study are robust to various
    sensititvity checks. Findings have implications for various stakeholders. For
    instance, there is currently appears to be a peoccupation amongst corporate
    governance reformists and policy makesr internationally to curb the provision
    of non-audit services by the incumbent auditor to aid in such matters as the
    reduction in earnings management. These findings suggest this proccupation may
    be misplaced and that constraining the ability of firms purchase non-audit
    sercives from the incumbent auditor could provide only limited benefits whilst
    increasing costs. In addition, policy makers and reformists need to consider more
    clearly the costs and benefits of any moves to limit industry concentrations
    within the audit market.


    Vol 14, Nomor 1, Tahun 2010


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