Audit Quality and Earnings Management: Empirical Evidence on the Role of Auditor Characteristics and Regulatory Oversight

Abstract

This paper examines the relationship between audit quality and earnings management, drawing on empirical evidence from publicly listed firms. Using discretionary accruals as a proxy for earnings management and multiple auditor-based proxies for audit quality, the study evaluates whether higher audit quality constrains managerial discretion in financial reporting. The results indicate a significant negative association between audit quality and earnings management. Furthermore, the findings demonstrate that regulatory oversight strengthens the effectiveness of audit quality in limiting earnings manipulation. The study contributes to the audit literature by integrating auditor characteristics with institutional context and offers policy-relevant implications for auditors, regulators, and standard setters.