DOES AUDIT QUALITY INFLUENCE EARNINGS MANAGEMENT PRACTICE IN COMPANIES? A THEORETICAL AND SYSTEMATIC REVIEW APPROACH

Abstract

The primary intent of this study is to examine whether audit quality influences earnings management practices in companies. Specifically, the study seeks to synthesize theoretical and empirical evidence on how audit quality attributes such as audit firm size, audit tenure, auditor independence, audit fees, industry specialization, audit report timeliness, and auditor opinion affect accrual-based and real earnings management, thereby addressing inconsistencies in prior literature. This study adopts a theoretical and systematic review approach based on the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) framework. Relevant studies were systematically identified from Scopus, Emerald, Taylor and Francis, and other peer-reviewed journals. After applying defined inclusion and exclusion criteria, twenty-five (25) empirical articles published between 2017 and 2025 were reviewed and synthesized. The review reveals that, in many cases, higher audit quality significantly constrains earnings management practices. Audit attributes such as audit firm size (Big 4), auditor independence, auditor reputation, audit tenure, and industry specialization are found to reduce both accrual-based and real earnings management. However, mixed and contradictory evidence is also observed, indicating that the influence of audit quality varies across institutional, regulatory, and country. The study concludes that audit quality is a critical determinant of financial reporting quality, but its effectiveness depends on the strength of governance systems and institutional frameworks within which it operates. It is therefore recommended that regulators and professional bodies strengthen auditor independence, enhance audit committee effectiveness, enforce audit quality standards, and promote industry-specific audit expertise.