The effect of audit quality in reducing earnings management practices

A field study of commercial banks listed in the Libyan financial market

Abstract

This study aimed to identify and determine the impact of the audit quality in terms of the size of the auditing office and the length of the external auditor service in reducing profit management practices in the commercial banks listed on the Libyan stock market. The descriptive analytical approach was used by designing a questionnaire to collect data and the information related to the independence of the external auditor and profit management practices and then distributed the questionnaires to the external auditors of the Libyan commercial banks listed in the Libyan Capital Market in Tripoli through field visits to the responsible authorities. Three categories with (150) individuals, (146) questionnaires were distributed and (130) questionnaires were valid for the use in the statistical analysis from the total of the auditors listed in the Central Bank of Libya register. In analyzing the data of the questionnaire, the study reached a number of results, the most important of which are: There is a statistically significant impact on the quality of the auditing, in terms of the size of the auditing office and the length of the external auditor service in reducing profit management practices by the banks' departments listed in the Libyan capital market, despite of the different age groups. The work of the external auditors involved in the study differed, but they agreed that there were no material differences on the impact of the size of the auditing office on the reduction of profit management practices, and it showed significant differences in the length of the external auditor service.