Audit Opinions and Earnings Management: Evidence from Listed Firms in Kuala Lumpur Stock Exchange (KLSE)
DOI:
https://doi.org/10.36325/ghjec.v22i3.25171.Keywords:
Audit Opinions , Earnings Management,, Kuala Lumpr Stock excheange , Financial Reporting Quality, Audit QualityAbstract
Background: Financial reports can be distorted by financial earnings management, which lowers their transparency and dependability. Consequently, it continues to be a major issue in financial reporting. By offering an impartial evaluation of financial statements, audits contribute to accurate reporting, and audit opinions strengthen managerial responsibility for the caliber of financial reporting.
Objectives: This research aims to probe the relationship between audit opinions and the earning management practiced by the KLSE's public companies. It In particular checks if the public companies with modified audit opinions have a different way of managing earnings from those of the firms with unmodified audit opinions, that is, clean ones.
Methods: This research uses a quantitative design based on panel data collected from KLSE-listed companies' annual reports and online databases. The sample comprises 665 firm-year observations over the period 2017–2021. To analyze the relationship between audit opinions and earnings management, various statistical tests were conducted.
Results: The findings indicate that Auditor Opinion is negatively and significantly associated with Earnings Management. This finding suggests that firms receiving more rigorous and skeptical audit opinions are associated with lower levels of earnings management.
Conclusion: The findings indicate that Auditor Opinion is negatively and significantly associated with Earnings Management. This negative association provides evidence of a significant relationship between audit opinions and financial reporting quality. The findings may assist investors, regulators, auditors, and other stakeholders in assessing corporate reporting practices and financial transparency.
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