The moderating role of audit quality on the relationship between auditor reporting and earnings management : empirical evidence from Tunisia

Purpose: The purpose of this study is to examine the interrelationship between modified audit opinions and earnings management as measured by discretionary accruals and develop a thorough understanding regarding the moderating effect of audit quality on this relation. Design/methodology/approach: This study uses a sample of Tunisian listed firms on the Tunis Stock Exchange during 2006–2013. Four models are developed and tested by using panel logistic and Feasible Generalized Least Squares (FGLS) regressions. Findings: The results show that earnings management increases the likelihood of receiving a modified audit opinions. Then firms receiving modified audit opinions manage earnings more than those receiving clean opinions. It is also discovered that audit quality moderates the relationship between audit opinion and earnings management. Practical implications: This paper contributes to the literature of both audit and management studies and represents the first effort to examine the relation between audit opinion and earnings management, with audit quality as a moderating variable. Originality/value: This study extends existing research on earnings management and audit opinion. Thus, this study has the potential to help stakeholders, board of directors, regulators and auditors, who are related with enhancing the supervision of firms and reducing the opportunities given to managers, to engage in earnings management. It constitutes an addition to previous knowledge about audit opinion in the Tunisian context before and after revolution.