The Impact of Audit firm Size and Auditor Tenure in the Reduction of Earnings Management (An Empirical Study on Industrial Corporations listed on Amman Stock Exchange)

Abstract

This study aims to test the impact of external auditor size and auditor tenure in the reduction of earnings management in the Jordanian Industrial corporations listed in Amman Stock Exchange during the period 2009 – 2015. In order to realize the study objectives, a sample of 59 industrial companies was chosen which represents 90% of overall community; also the study relied on the absolute value of the discretionary accruals, which have been extracted from the use of Performance-Matched Modifies Jones model.

After testing the hypotheses statistically, The study finds that the presence of statistically significant indications to practice of Earnings Management by Jordanian Industrial corporations, also the study find that auditor size tends to reduce the practice of earnings management due to the existence of a negative relation between them, In addition, the study did not find a relation btween auditor tenure and earnings management. The study recommends the need to work by the official authorities in Jordan to develop more conservative laws and regulations in line with the requirements of the International Financial Reporting Standards, to reduce the practice of earning management.