Exploring the impact of corporate governance and external audit quality on creative accounting practices

The current study adopts a multivariate model to investigate the impact of board size, board independence, managerial ownership, audit committee independence, and external audit quality (proxied by audit fees) on creative accounting practices. Data for the study were obtained from commercial banks’ annual reports published on the Amman Stock Exchange (ASE) during the period from 2017 to 2021. The results of the ordinary least squares (OLS) regression analysis reveal that managerial ownership and audit fees have a significant positive impact on creative accounting, while audit committee independence has a significant negative impact. In addition, the results reveal that neither board independence nor board size influences creative accounting. The study findings highlight the need for effective regulatory oversight and monitoring of the extent of managerial ownership and audit fees to curb earnings management practices. In addition, the findings accentuate the importance of audit committee independence for enhancing financial reporting quality and integrity within the banking sector. The study concludes with several recommendations that hopefully enhance transparency and the quality of financial reporting in the banking sector.