Audit Quality and Earnings Management: With Reference to Family-Owned Firms

Abstract

The purpose of the study is to examine the association between earnings management and audit quality of Two hundred sixty-eight (268) business group firms from 2016 to 2021. The study has taken both accrual-based earnings management and a composite proxy for real earnings management to estimate the earnings management practices of the Indian business group firm. BIG_4 is used as a dummy variable for measuring the audit quality of firms. To examine the association between earnings management and audit quality, Panel fixed effect model is used. The results signify that audit quality is negatively associated with earnings management. This finding indicates that business group firms are quite concerned about earnings quality and less likely to be involved in earnings management practices for India. The result would draw the attention of law makers, policy makers and government regarding the loopholes of principles-based accounting. Especially, the result would help the accounting standard setter to change and rectify the present system of accounting principles.