THE ASSOCIATION BETWEEN AUDIT QUALITY AND EARNINGS MANAGEMENT USING CLASSIFICATION SHIFTING

Abstract

Aim: The aim of this paper is to analyze the association between audit quality measured by audit firm size and earnings management by classification shifting. Method: In this paper, we used 896 firm-year observations of the publicly-traded manufacturing firms in Istanbul Stock Exchange for the period of 2009 to 2017. We used least square regression method to analyze the association between audit quality and earnings management by classification shifting. Findings: The findings showed that when the ability of the managers to manage the profit is limited by high quality audit, it is more likely to use the classification shifting by shifting the core expenses to non-operating expenses.Results: The result is important to show that companies can turn to classification shifting as an alternative earnings management tool if their opportunity to manage accruals is limited by independent audit quality.

Keywords

• audit quality
• classification shifting
• earnings management
• non-operating expenses.
• denetim kalitesi
• sınıflandırma değiştirmesi
• kâr yönetimi
• faaliyet dışı giderler