This dissertation was written as part of the MSc in International Accounting, Auditing
and Financial Management at the International Hellenic University.
There has been much discussion in recent literature regarding the earnings
management issue. Several studies have revealed that earnings management is
associated with earnings manipulation to conceal firms’ performance and respectively
boost investment decisions. This study examines earnings management from the scope
of audit quality as well as corporate governance. To proceed with the results, a
quantitative approach was employed, using a large sample of publicly traded European
firms for the period 2013 - 2017. Establishing the study area in the European Union,
including Switzerland, is advantageous and tries to expand the existed literature. Our
results are not in consistent with prior research, supporting that the documented
hypotheses regarding audit committee size, audit committee independence and audit
quality have significant positive association with discretionary accrual as a proxy for
earnings quality. These associations can be interpreted suggesting that in large listed
companies, Shareholders, Management even though Audit Committee, seemed to act
on behalf of their benefits and welfare. Consequently, there has been much criticism on
auditor’s services, for prioritizing profit instead of protecting the shareholders’ welfare.
Together these results provide important insights into the proper and legal firms
operation and suggest that even though in big and well-organized firms, many steps of
improvement need to be done, eliminating differences and enhancing transparency.
Progress of auditing procedure, and ethic-based policy should be highlighted and
adopted in the short-term future, while making more difficult the feasibility of earnings
manipulation and the possible existence of economic scandals.
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