The impact of audit quality and state ownership on accrual-based earnings management: evidence from Vietnam

Nguyen Thu Hang1, Tran Nguyen Minh Tran1, Pham Thi Anh Thuy1, Phan Hoai Thuong1
1 Foreign Trade University

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Abstract

This paper examines the impact of audit quality and state ownership on accrual-based earnings management in Vietnamese listed firms. We find that firms which are audited by one of Big Four auditing companies (Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG) are less likely to engage in earnings management than those audited by Non-Big Four companies. We also find that the higher the proportion of state ownership accounts in outstanding shares, the less earnings management is. Based on the results, we conjecture that a Big Four auditor tends to restrain the use of aggressive accounting, and to make the audited financial statements in compliance with the standards. Also, enterprises with higher proportion of state ownership may have protection from the government as well as less pressure to meet the market expectations than their counterparts, resulting in less earnings management.

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