Abstract
The beginning of the 21st century was marked by a multitude of financial scandals, notably the Enron affair in 2001 and the fall of the auditing firm Arthur Andersen (2002). Such scandals have called into question of the financial reporting quality. The main cause of these scandals was the failure of the external audit quality which is considered crucial to ensure the reliability and relevance of accounting information. Moreover, following the promulgation of the SOX law (2002), managers tend rather towards the real activities manipulation to avoid the detection of the accounting earnings management. In fact, managers can resort to certain adjustments whose opportunistic or optimal nature is difficult to discern by auditors, in particular the reduction in selling prices, the granting of more lenient credit terms, overproduction and the reduction or postponement of research and development (R&D) and advertising expenditure. This study therefore aims to show the role that external audit quality can play in limiting real activities manipulation and therefore in the quality of accounting information. For this, we conducted an empirical study with a sample of the main. Tunisian commercial banks observed over a period from 2006 to 2019, using the panel data method. The results indicate that the presence of a reputable auditor limits real earnings management. However, the results show that the tenure of auditors increases these discretionary practices.
Highlights
The several financial scandals, in particular the 2001 Enron affair and the fall of the audit firm Arthur Andersen (2002) showcased the beginning of the twenty-first century
Managers can resort to certain adjustments whose opportunistic or optimal nature is difficult to discern by auditors, in particular the reduction in selling prices, the granting of more lenient credit terms, overproduction and the reduction or postponement of research and development (R&D) and advertising expenditure
The descriptive statistics show that the average tenure is 3.75 with a minimum of 0 and a maximum of 10
Summary
The several financial scandals, in particular the 2001 Enron affair and the fall of the audit firm Arthur Andersen (2002) showcased the beginning of the twenty-first century. The author defined external audit quality as the joint probability that the auditor will both discover fraud or irregularities in the client's financial statements (depends on the auditor's overall competence: their technological capabilities, their expertise level...), In Tunisia, according to the code of Tunisian commercial companies, external audit is an obligation for companies. This code sets the operational conditions for external audit as well as its missions
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