Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia

Earnings quality reflects the integrity and quality of financial reporting which minimizes the information asymmetry and agency conflicts among management, owners, and majority and minority shareholders. The issue of earnings quality has become a concern, especially in respect of corporate governan...

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Main Author:	Al-Rassas, Ahmed Hussein
Format:	Thesis
Language:	eng eng
Published:	2015
Subjects:	HF5601-5689 Accounting
Online Access:	https://etd.uum.edu.my/6234/1/s93654_01.pdf https://etd.uum.edu.my/6234/2/s93654_02.pdf
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id	my-uum-etd.6234
record_format	uketd_dc
institution	Universiti Utara Malaysia
collection	UUM ETD
language	eng eng
advisor	Kamardin, Hasnah
topic	HF5601-5689 Accounting HF5601-5689 Accounting
spellingShingle	HF5601-5689 Accounting HF5601-5689 Accounting Al-Rassas, Ahmed Hussein Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia
description	Earnings quality reflects the integrity and quality of financial reporting which minimizes the information asymmetry and agency conflicts among management, owners, and majority and minority shareholders. The issue of earnings quality has become a concern, especially in respect of corporate governance as an internal monitoring mechanism to ensure the financial reporting quality. The objective of the study is to examine the relationship between internal monitoring mechanisms, namely, board of directors, audit committee, internal audit function, and earnings quality based on agency theory and resource dependence theory. Furthermore, this study examines the moderating effect of audit committee between the internal audit function and earnings quality. The sample of the study is 2,036 firm-year observations on the Main Market of Bursa Malaysia for the period of 2009 to 2012. Two discretionary accruals models were used to measure earnings quality. This study reveals that board size, audit committee financial expertise, investment in internal audit function, and outsourcing of internal audit function increase the quality of earnings. However, board independence, board financial expertise, audit committee’s chairman audit partner, audit committee meeting, and audit committee score reduce earnings quality. The hierarchical regression results show that audit committee size, independence, meetings, and audit committee score moderate the relationship between investment in the internal audit function and earnings quality. In addition, audit committee independence, financial expertise, meetings, and audit committee score moderate the relationship between sourcing arrangements of the internal audit function and earnings quality. The results of this study have implications to investors, regulators, and market participants. Policy makers might use the findings regarding earnings quality to recognize the important roles played by both the internal audit and audit committee in enhancing the earnings quality in Malaysian companies.
format	Thesis
qualification_name	Ph.D.
qualification_level	Doctorate
author	Al-Rassas, Ahmed Hussein
author_facet	Al-Rassas, Ahmed Hussein
author_sort	Al-Rassas, Ahmed Hussein
title	Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia
title_short	Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia
title_full	Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia
title_fullStr	Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia
title_full_unstemmed	Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia
title_sort	internal monitoring mechanisms and earnings quality: empirical evidence from malaysia
granting_institution	Universiti Utara Malaysia
granting_department	Tunku Puteri Intan Safinaz School of Accountancy (TISSA)
publishDate	2015
url	https://etd.uum.edu.my/6234/1/s93654_01.pdf https://etd.uum.edu.my/6234/2/s93654_02.pdf
_version_	1747828042280992768
spelling	my-uum-etd.62342021-03-18T03:31:44Z Internal monitoring mechanisms and earnings quality: Empirical evidence from Malaysia 2015 Al-Rassas, Ahmed Hussein Kamardin, Hasnah Tunku Puteri Intan Safinaz School of Accountancy (TISSA) School of Accountancy HF5601-5689 Accounting HF5667 Professional Ethics. Auditors. Earnings quality reflects the integrity and quality of financial reporting which minimizes the information asymmetry and agency conflicts among management, owners, and majority and minority shareholders. The issue of earnings quality has become a concern, especially in respect of corporate governance as an internal monitoring mechanism to ensure the financial reporting quality. The objective of the study is to examine the relationship between internal monitoring mechanisms, namely, board of directors, audit committee, internal audit function, and earnings quality based on agency theory and resource dependence theory. Furthermore, this study examines the moderating effect of audit committee between the internal audit function and earnings quality. The sample of the study is 2,036 firm-year observations on the Main Market of Bursa Malaysia for the period of 2009 to 2012. Two discretionary accruals models were used to measure earnings quality. This study reveals that board size, audit committee financial expertise, investment in internal audit function, and outsourcing of internal audit function increase the quality of earnings. However, board independence, board financial expertise, audit committee’s chairman audit partner, audit committee meeting, and audit committee score reduce earnings quality. The hierarchical regression results show that audit committee size, independence, meetings, and audit committee score moderate the relationship between investment in the internal audit function and earnings quality. In addition, audit committee independence, financial expertise, meetings, and audit committee score moderate the relationship between sourcing arrangements of the internal audit function and earnings quality. The results of this study have implications to investors, regulators, and market participants. Policy makers might use the findings regarding earnings quality to recognize the important roles played by both the internal audit and audit committee in enhancing the earnings quality in Malaysian companies. 2015 Thesis https://etd.uum.edu.my/6234/ https://etd.uum.edu.my/6234/1/s93654_01.pdf text eng public https://etd.uum.edu.my/6234/2/s93654_02.pdf text eng public Ph.D. doctoral Universiti Utara Malaysia Abbott, L. J., Park, Y., & Parker, S. (2000). The effects of audit committee activity and independence on corporate fraud. Managerial Finance, 26(11), 55-68. Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. 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