Internal Audit Quality and Earnings Management

• 成果类型: Article
• 署名作者: Prawitt, Douglas F.; Smith, Jason L.; Wood, David A.
• 署名单位: Brigham Young University; Nevada System of Higher Education (NSHE); University of Nevada Las Vegas
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.2009.84.4.1255
• 发表日期: 2009
• 页码: 1255-1280
• 关键词: CORPORATE GOVERNANCE; performance; fees; association; incentives; COMMITTEE

摘要

Internal auditors perform work that is relevant to their host entities' financial reporting processes; yet, little research attention has focused on the effects of internal auditing on companies' external financial reporting. Using a unique and previously unavailable data set, we investigate the relation between internal audit function (IAF) quality and earnings management. We measure IAF quality using a composite measure comprising six individual components of IAF quality based on SAS No. 65, which guides external auditors in assessing the quality of an IAF with respect to its role in financial reporting. Earnings management is measured using two separate proxies: (1) abnormal accruals and (2) the propensity to meet or barely beat analysts' earnings forecasts. We find evidence that IAF quality is associated with a moderation in the level of earnings management as measured by both proxies.