The Impact of Auditor Qualifications on Earnings Management of Companies Listed on the Borsa Istanbul Industrial Index

Abstract

This research serves to reveal whether independent auditor’s (as the real person and the legal entity) qualifications have any effect on earnings management (discretionary accruals and real activities manipulations) by using a panel data regression analysis using 183 companies of 5 years, between 2011-2015, with minimum of 463 and maximum of 721 firm-year observations. These qualifications are defined as audit firm size, audit opinion, audit gender, audit firm expertise, audit firm or partner rotation, geographical difference with dummy variables and opinion and audit firm categories were analyzed by using all of the units. The results reveal that manipulating the earnings via business activities has no relationship with any qualification of the auditor. The discretionary accruals models conform that the audit firm brand has negative effect on the discretionary accruals and Turkish manufacturing companies do not rotate neither the audit firms nor the partner for earnings management purposes. No statistical difference was found between male and female auditors on discretionary accruals.