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AuthorIsmael, Hazem Ramadan
AuthorKamel, Hany
Available date2022-12-20T06:22:44Z
Publication Date2021-08-05
Publication NameManagerial Auditing Journal
Identifierhttp://dx.doi.org/10.1108/MAJ-09-2020-2830
CitationIsmael, H. R., & Kamel, H. (2021). Internal audit quality and earnings management: evidence from the UK. Managerial Auditing Journal.
ISSN0268-6902
URIhttps://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=85112086587&origin=inward
URIhttp://hdl.handle.net/10576/37418
AbstractPurpose: This study aims to examine the association between internal audit quality and the involvement of UK companies in earnings management practices. Design/methodology/approach: To measure the internal audit quality, this study uses 115 responses for a postal questionnaire that was addressed to the heads of internal audit departments in a sample of non-financial listed companies in the UK context. The other financial and governance data for the respondent companies were collected from the Datastream and the companies’ annual reports. The present study uses the signed abnormal accruals as a proxy for earnings management and uses both logistic and ordinary least squares regression models to test the research hypothesis. Findings: This study finds a negative relationship between the internal audit quality and the abnormal accruals, implying the prominent role of internal audit in reducing the upwards earnings management. The study also finds a significant impact of the internal audit competence on reducing the engagement of UK companies in income-increasing earnings management compared to the internal audit independence. This remarkable result suggests the companies need to focus more on enhancing the internal audit competence to reduce the opportunistic management’s behaviour. Practical implications: This study has important implications for the internal audit’s practice, regulation and research. Originality/value: This is the first study that investigates the relationship between internal audit quality and earnings management in the UK context. Furthermore, it uses a comprehensive measure for the internal audit function (IAF) quality covering different aspects of IAF quality based on the global Institute of Internal Auditor standards and prior internal audit literature.
Languageen
PublisherEmerald
SubjectAudit committee
Corporate governance
Earnings management
Financial reporting quality
Internal audit
TitleInternal audit quality and earnings management: evidence from the UK
TypeArticle
Pagination951-978
Issue Number7
Volume Number36
dc.accessType Abstract Only


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