The Impact of Audit Quality Features on Enhancing Earnings Quality: The Evidence of Listed Manufacturing Firms at Amman Stock Exchange

Abstract

The study aims at investigating the impact of external audit quality features on enhancing the quality of accounting profits of the listed manufacturing firms at Amman Stock Exchange (ASE), where continuity of profit has been used as Proxy variable to express the quality of earnings. Indicators of quality of audit, audit office size, auditors' fees, period of customer's retention, type of auditor's opinion, and the specialization in client's industry, were used to measure audit quality. A sample of 45 firms had been selected, and data covering the period 2009-2013 had been collected from these firms, where 225 observations were used in the analysis. The study finds that the earnings of listed manufacturing firms at Amman Stock Exchange are with good quality, and that there is a linear relationship between external audit quality and the quality of reported earnings. Auditors' fees have most important significant effect on earnings quality, followed by auditors' opinion, where others factors has no significant effect on earnings quality. Based on these findings, the study raises several questions about the reliability of audit quality properties by stakeholders in firms, especially investors, when they check the quality of earnings, whenever they need to take a decision. The study recommends further researches regarding the issue by using other metrics to measure earnings quality, and through the addition of other properties to the quality of the audit, such as linked audit offices with auditing global offices, degree of qualification employees, and the opened lawsuits against audit office.