Auditing Quality, Auditor Tenure, Client Importance, and Earnings Management: An Additional Evidence

This paper provides additional evidence about the effect of auditing quality on earnings management behavior. The paper used cash flows from operating activities as reported in cash flows statement to estimate the total accruals and applied a time series version of the modified Jones model to estimate the discretionary accruals. Using a sample of NASDAQ companies in addition to companies listed in NYSE and AMEX, and after controlling for the auditor’s tenure and client importance effects, the results provided an additional evidence about the negative relation between auditing quality and earnings management behavior. The results also show that the auditor’s tenure has some positive effect on the efficiency of the audit process and improves the monitoring function assumed by auditors. The results also show no evidence that the client importance may affect the auditor’s independence or that auditors allow their big client more discretion in reporting their earnings