The impact of new regulations on earnings quality among Malaysian firms

The main purpose of this study is to examine the impact of the establishment of the Audit Oversight Board (AOB) on audit effort and the effect of the introduction of provisions 317A and 320A of the Capital Markets and Services Act (CMSA) and earnings management. Specifically, it is argued that the m...

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Main Authors:	Abdullah, Shamsul Nahar, Che A Halim, Nur Fajrina, Puat Nelson, Sherliza
Format:	Article
Language:	English
Published:	International Islamic University Malaysia 2014
Subjects:	HF5387 Business ethics
Online Access:	http://irep.iium.edu.my/40436/ http://irep.iium.edu.my/40436/ http://irep.iium.edu.my/40436/1/Vol22No2Paper2.pdf

id	iium-40436
recordtype	eprints
spelling	iium-404362018-05-24T01:01:25Z http://irep.iium.edu.my/40436/ The impact of new regulations on earnings quality among Malaysian firms Abdullah, Shamsul Nahar Che A Halim, Nur Fajrina Puat Nelson, Sherliza HF5387 Business ethics The main purpose of this study is to examine the impact of the establishment of the Audit Oversight Board (AOB) on audit effort and the effect of the introduction of provisions 317A and 320A of the Capital Markets and Services Act (CMSA) and earnings management. Specifically, it is argued that the monitoring role of the AOB leads to auditors being more rigorous in conducting audits so as to achieve high compliance with auditing standards. Thus, auditors have to put in more effort, which requires them to increase audit fees to compensate the increase in hours spent on an engagement. This study hypothesizes that an increase in audit effort should mitigate earnings management due to consequent higher detection of earnings management. As for Sections 317A and 320A of the CMSA, the objective is to ensure the independent directors are more effective in discharging their monitoring roles. It is also hypothesized that the level of earnings management should be reduced as a result of the more effective monitoring by independent boards of directors and audit committees. The data sample comprises 2,124 observations collected from the annual reports of 708 firms for three years from 2009–2011, which covers the periods before and after the establishment of the AOB. The results indicate that there is an increase in audit effort from pre- to post-AOB. This suggests that the monitoring role of the AOB makes auditors more proper in carrying out the audit process and in collating supporting documentation. The regression analyses reveal the role of board independence in reducing earnings management after the new regime was enforced. This study contributes to the corporate governance literature by examining the effect on financial reporting quality after the changes in rules and legislation, especially in respect of the audit regulatory system with the establishment of the AOB and the issuance of Sections 317A and 320A of the CMSA. International Islamic University Malaysia 2014-12 Article PeerReviewed application/pdf en http://irep.iium.edu.my/40436/1/Vol22No2Paper2.pdf Abdullah, Shamsul Nahar and Che A Halim, Nur Fajrina and Puat Nelson, Sherliza (2014) The impact of new regulations on earnings quality among Malaysian firms. International Journal of Economics, Management and Accounting, 22 (2). pp. 21-68. ISSN 0128-006 http://journals.iium.edu.my/enmjournal/index.php/enmj
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HF5387 Business ethics
spellingShingle	HF5387 Business ethics Abdullah, Shamsul Nahar Che A Halim, Nur Fajrina Puat Nelson, Sherliza The impact of new regulations on earnings quality among Malaysian firms
description	The main purpose of this study is to examine the impact of the establishment of the Audit Oversight Board (AOB) on audit effort and the effect of the introduction of provisions 317A and 320A of the Capital Markets and Services Act (CMSA) and earnings management. Specifically, it is argued that the monitoring role of the AOB leads to auditors being more rigorous in conducting audits so as to achieve high compliance with auditing standards. Thus, auditors have to put in more effort, which requires them to increase audit fees to compensate the increase in hours spent on an engagement. This study hypothesizes that an increase in audit effort should mitigate earnings management due to consequent higher detection of earnings management. As for Sections 317A and 320A of the CMSA, the objective is to ensure the independent directors are more effective in discharging their monitoring roles. It is also hypothesized that the level of earnings management should be reduced as a result of the more effective monitoring by independent boards of directors and audit committees. The data sample comprises 2,124 observations collected from the annual reports of 708 firms for three years from 2009–2011, which covers the periods before and after the establishment of the AOB. The results indicate that there is an increase in audit effort from pre- to post-AOB. This suggests that the monitoring role of the AOB makes auditors more proper in carrying out the audit process and in collating supporting documentation. The regression analyses reveal the role of board independence in reducing earnings management after the new regime was enforced. This study contributes to the corporate governance literature by examining the effect on financial reporting quality after the changes in rules and legislation, especially in respect of the audit regulatory system with the establishment of the AOB and the issuance of Sections 317A and 320A of the CMSA.
format	Article
author	Abdullah, Shamsul Nahar Che A Halim, Nur Fajrina Puat Nelson, Sherliza
author_facet	Abdullah, Shamsul Nahar Che A Halim, Nur Fajrina Puat Nelson, Sherliza
author_sort	Abdullah, Shamsul Nahar
title	The impact of new regulations on earnings quality among Malaysian firms
title_short	The impact of new regulations on earnings quality among Malaysian firms
title_full	The impact of new regulations on earnings quality among Malaysian firms
title_fullStr	The impact of new regulations on earnings quality among Malaysian firms
title_full_unstemmed	The impact of new regulations on earnings quality among Malaysian firms
title_sort	impact of new regulations on earnings quality among malaysian firms
publisher	International Islamic University Malaysia
publishDate	2014
url	http://irep.iium.edu.my/40436/ http://irep.iium.edu.my/40436/ http://irep.iium.edu.my/40436/1/Vol22No2Paper2.pdf
first_indexed	2023-09-18T20:58:01Z
last_indexed	2023-09-18T20:58:01Z
_version_	1777410435194028032

The impact of new regulations on earnings quality among Malaysian firms

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