The impact of audit quality on earnings management in publicly listed U.S. Companies

This study examined the effect of Audit quality on Earnings management of publicly listed US companies. The dependent variable; Earnings management, was measured using discretionary accruals, while the Independent Variable; Audit quality, was proxied by factors Auditor size (Big Four), audit fees, and auditor tenure. The study adopted a quantitative research design to investigate the relationship between audit quality and earnings management. A sample of publicly listed U.S. companies was selected from the SandP 500 index, spanning a period of five years (e.g., 2018-2022). Financial data were sourced from publicly available databases such as SEC filings, annual reports, and audit reports. The study adopted themodel used by Tyokoso and Tsegba (2015). The findings of the study revealed that Audit Tenure had a positive but statistically insignificant effect on earnings management, Audit Firm Size had a negative and statistically significant effect on earnings management, Leverage exhibited a positive but statistically insignificant effect on earnings management, Cash Flow showed a negative and statistically significant effect on earnings management, and Firm Size had a negative and statistically significant effect on earnings management, meaning that larger firms engage in less earnings manipulation compared to smaller firms. Based on the findings, it was recommended that companies should engage larger, reputable audit firms (Big 4 auditors) to ensure higher financial reporting quality and reduced earnings manipulation.