アラビアン・ジャーナル・オブ・ビジネス・アンド・マネジメント・レビュー

Relationship between Earnings Quality and External Audit Quality: Evidences from US and French Companies

Abstract

Trabelsi Slaheddine

During the recent years, the accounting scandals have multiplied (Enron, Worldcom, Xerox,). Several factors have contributed to these scandals. Among these factors we find the quality of audit. This paper examines the impact of audit quality on earnings quality. Audit quality is measured by financial statements audited by one of Big 4 auditing firms. Earning quality is measured by the predictability power of time series of earnings for firm financial statement audited by one of Big 4 auditing firm and those audited by non Big 4 auditing firms. Based on a sample of around 4030 firm-year observations in the French and US market during ten years (2004-2013), we document evidence that earnings quality is better when financial statements are audited by one of Big 4 auditing firms. Nevertheless, earnings quality of US companies are more associated with audit quality than those of French companies.