Impact of Audit Best practice on the Quality of Financial Reporting: New Evidence from an Emerging Context | ||||
| المجلة العلمية للدراسات التجارية والبيئية | ||||
| Article 4, Volume 15, Issue 1, January 2024, Page 181-223 PDF (600.71 K) | ||||
| Document Type: المقالة الأصلية | ||||
| DOI: 10.21608/jces.2024.356341 | ||||
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| Author | ||||
| Eman Fathi Attia* | ||||
| Accounting Department, College of Business and Administration, University of Business and Technology, Jeddah 21448, Saudi Arabia Accounting and Finance Department, College of Business and Technology, Arab Academy for Science & Technology and Maritime, Cairo P.O. Box 1029, Egypt | ||||
| Abstract | ||||
| This study looked at how audit quality affected the quality of financial reporting for Egyptian-listed companies. Using annual data from 2011 to 2020, totaling 780 observations, we use one of the most advanced models, a system generalised method of moments (GMM) estimator, to control dynamic endogeneity issues and unobserved firm heterogeneity, thereby improving the results' validity and reliability. This is the first study to detect earnings manipulation (EM) in the Egyptian context utilising different accrual-based EM models, including a modified Jones model (1995), Kothari, Leone, and Wasley's (2005) model, Kasznik's (1999) model, and Raman and Shahrur's (2008) model. The data indicate that the Big Four audit firms have no substantial impact on improving the quality of financial reports published in the stock market. The Egyptian audit market, combined with no litigation risk, economic bonding between auditors and their clients, lower investor protection, weak enforcement mechanisms, and firm dominance by controlling groups, encourages auditors to behave opportunistically, undermining their independence and objectivity. As a result, this analysis demonstrates that hiring Big Four auditors is insufficient to ensure financial reporting reliability and integrity. Thus, Egyptian market regulators and policymakers should unify financial reporting and auditing standards, increase enforcement mechanisms, implement legislation and norms that limit profits manipulation behaviours, and incentivize greater quality delivery. | ||||
| Keywords | ||||
| audit quality; quality of financial reporting; system generalised method of moment (SGMM); emerging market | ||||
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