The Effect of Audit Quality to The Earnings Management Around The Indonesian Monetary Crisis

Prihat Assih (Accounting Department Economics Faculty University of Merdeka, Malang)

Jurnal Akuntansi dan Bisnis
Vol 5, No 2 (2005)

This study investigates the effect of audit quality on the earnings management behaviour of auditee during different macroeconomics condition, the years prior to and the years following the 1997 monetary crisis as experienced in Indonesia. This study hypothesis that client of quality auditors (industry specialist auditors) report lower earnings management compared to client of other auditors both within the years of the Indonesian monetary crisis and within the years prior to and the years following the monetary crisis. Analysis based on 436 matched-sample firms (by specialist auditor/non-specialist auditor) for periods 1995-2000. The results show that the income-increasing management, income decreasing, and absolute earnings management reported by clients of industry specialist auditor are lower than for those the non industry specialist auditor. Audit quality found to be associated with discretionary accruals and differently to across different macroeconomic period.