African Journal of Business Management
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Article Number - 9B292AE29173

Vol.5(7), pp. 2686-2699 , April 2011

DOI: 10.5897/AJBM10.1040   Total Views: 195

ISSN: 1993-8233   Downloaded: 111

Full Length Research Paper

Study of earnings management and audit quality

Shu-Ling Chiang1 Li-Hua Huang2* and Hsing-Chin Hsiao2


1Department of Accounting, Soochow University, Taipei, Taiwan.

2Department of Accounting and Information, National Taipei College of Business, Taipei, Taiwan.


Accepted: 08 February 2011      Published: 04 April 2011

Copyright © 2011 Author(s) retain the copyright of this article.

Author(s) agree that this article remain permanently open access under the terms of the

Creative Commons Attribution License 4.0 International License



This paper applies the pooled cross-sectional distribution approach to testify whether Small and Medium Enterprises (SMEs) perform earnings management from 1997 to 2003. The study finds that as the SMEs incurred the minor loss, the earnings was manipulated to slight positive earnings for deficit avoidance and failure embarrassment. This leaping zero earnings thresholds of earnings management behavior was not affected by industry characteristics. Regarding the relationship between the earnings management and audit quality, chi-square tests are used. The goal of earnings management crossing the zero earnings thresholds triggered the intention of audit service prepared by the low audit quality Certified Public Accountants (CPAs).


Key words: Small business accounting, earnings management, audit quality.

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