Influence of IFRS adoption on earnings management through the moderating role of audit quality: evidence from KSA and UAE / Ahmed Fadhil Saleh, Siwar Ellouz and Ridha Ali Abdullah

The purpose of the study was to explore influence of IFRS adoption on earnings management (EM) and the role of audit quality (AQ), represented by big 4 audit firms. Also, the role of AQ as a moderator in the association between IFRS and EM. The financial data of 97 non-financial listed firms were taken from DataStream and audited with the Saudi Stock Exchange and the Emirates Stock Exchange for the period 2011-2021. The financial data was analyzed using Kothari et al., (2005) model regarding to AEM and Roychowdhury, (2006) with regard to REM. The results indicated a negative significant effect that IFRS contributes to reduce AEM and REM. Besides, audit quality had the same influence on EM. The findings, furthermore, revealed a positive insignificant relationship of the moderating role of AQ which meant that the big4 firms did not anticipate to reduce the EM. This might be due to a lack of local financial and accounting professionals in line with the requirements of major-4 audit companies or the higher costs when relying on big 4 auditing firms. This study opens valuable insights to relevant parties, including government bodies, local standard-setters, shareholders, and emerging markets that have a similar environment.