Abstract
The general objective of this research is to explore the model of earnings quality monitoring and to examine the effect of auditor independence on the relationship between corporate governance mechanism and earnings quality. Specifically, this research is aimed to investigate the impact of ownership structure, commissioner board structure, audit committee structure, internal audit function, and internal control activity, on earnings quality by involving an interaction of these variables with auditor independence. Earnings quality is measured with two proxies. The first proxy is performance-adjusted discretionary accruals or also called Total Accrual, while the second utilizes Total Current Accrual. Achieving all objectives above, the author develops a model and analyses this model in two stages. In the first stage, the model is explored using analysis technique of correlation and regression. Second, fittingness of model is attested using regression analysis with a variety of variable controls and sample controls. Research object is the manufacture companies listed in Indonesia Stock Exchange in period 2011-2015. The Sample includes 112 companies with 560 data of research. After conducting outlier test, the suitable amount of data is 553. The Result of hypothesis test indicates that the model of earnings quality monitoring is constructed from the interaction of many variables. Corporate governance mechanism consists of variables such as ownership structure (managerial ownership and institutional ownership), commissioner board structure, audit committee structure, internal audit function, and internal control activity. Adjusted R-Square value is reaching for 3.3% with significance-value of 0.001. Partially, commissioner board structure, internal audit function, and internal control activity have a significant effect on earnings quality. Auditor independence does not moderate the impact of corporate governance components on earnings quality.
Highlights
Profit and Loss Statement is a structure to communicate financial information to the relevant parties out of the company
The general objective of this research is to explore the model of earnings quality monitoring and to examine the effect of auditor independence on a relationship between corporate governance mechanism and earnings quality
The specific objective of this research is to investigate the effect of ownership structure, commissioner board structure, audit committee structure, internal audit function, and internal control activity, on earnings quality by using auditor independence as moderating variable
Summary
Profit and Loss Statement is a structure to communicate financial information to the relevant parties out of the company. The owner always gets information from the report made by the agency This relationship leads to a situation called information asymmetry. Imparity situation and the potential conflict of interest between company management and financial information user can be avoided by using a third party (neutral) to audit earnings-loss statement to improve the quality of financial information given by management (Sumarwoto, 2006). The study can contribute to the understanding of the effect of auditor independence on a relationship between governance mechanism and earnings quality in a particular agency setting. They might be of interest to practitioners and regulators, as they are consistent with calls for more earnings quality requirements in this agency setting (Allegrini, 2013)
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