Independent Board, Earnings Management, and Audit Quality

Abstract

This study aims to examine the effect of independent board on earnings management with auditor quality as moderating. Auditor quality is the focus of this study, because the auditor's reputation is predicted to reduce the level of earnings manipulation. Auditor quality is measured using industry specialties that describe the market share of audit services in the same industry and auditor size (big four). Both auditor quality measurements encourage researchers to examine the difference in influence between the quality of industry specialization auditors and big four auditors.

The study was conducted on manufacturing companies listed on the Indonesia Stock Exchange in the period 2013 - 2016 with 130 companies and the number of observations was 322 cases. The research design uses the Moderating Regression Analysis with audit quality variables as moderating. The results of this analysis conclude that the interaction of independent boards with big four auditors increases the effectiveness of monitoring and monitoring the financial reporting process. This is likely related to the auditor's selection decision as the authority of the board of boards, while the independent board reinforces the decision of the choice of a reputable auditor (big four auditor). This study aims to examine the effect of independent board on earnings management with auditor quality as moderating. Auditor quality is the focus of this study, because the auditor's reputation is predicted to reduce the level of earnings manipulation. Auditor quality is measured using industry specialties that describe the market share of audit services in the same industry and auditor size (big four). Both auditor quality measurements encourage researchers to examine the difference in influence between the quality of industry specialization auditors and big four auditors.

The study was conducted on manufacturing companies listed on the Indonesia Stock Exchange in the period 2013 - 2016 with 130 companies and the number of observations was 322 cases. The research design uses the Moderating Regression Analysis with audit quality variables as moderating. The results of this analysis conclude that the interaction of independent boards with big four auditors increases the effectiveness of monitoring and monitoring the financial reporting process. This is likely related to the auditor's selection decision as the authority of the board of boards, while the independent board reinforces the decision of the choice of a reputable auditor (big four auditor).