Title: The effect of the auditor behaviour on the earnings management: evidence from Tunisia

Authors: Nadàa Hachicha Elfouzi

Addresses: Accounting Department, Superior Institute of Management, University of Tunis, 47 rue, 62126 Seddik IMB Ben Ghali, 1091 Tunis, Tunisia

Abstract: The aim of this paper is to examine the effect of auditor behaviour the year (t - 1) on earnings management the year t measured by discretionary accruals in the emerging Tunisian market. As proxies for auditor behaviour, we use the type of audit firm (Big/No-Big) and the type of audit opinion (unqualified, qualified, adverse or disclaimed). Using the Kothari et al. (2005) model to calculate discretionary accruals for 53 no-financial firms during the period 2002-2007, we found that a positive but no significant relationship between the qualified audit opinions and discretionary accruals, and a negative and significant relationship between the auditors Big Four and discretionary accruals. Overall, we found no evidence to support inferences in previous research that the firms receiving modified audit opinions are more likely to have manipulated reported earnings. On the other hand, the Big Four auditors show a significantly lower level of discretionary accruals and a greater propensity to issue modified audit reports.

Keywords: audit opinions; audit reports; audit firms; firm size; auditor behaviour; earnings management; discretionary accruals; Tunisia; emerging markets; auditing; Big Four auditors.

DOI: 10.1504/IJCA.2013.053354

International Journal of Critical Accounting, 2013 Vol.5 No.1, pp.63 - 80

Published online: 28 Nov 2013 *

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