IAF Quality and Earnings Management Influenced by Big Data Analytics Powered by Artificial Intelligence and Other Moderators

Al Balushi, Ahmed (2021) IAF Quality and Earnings Management Influenced by Big Data Analytics Powered by Artificial Intelligence and Other Moderators. Doctoral thesis, University of East Anglia.

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This study examined several country-level and corporate-level factors that could moderate the effects of internal audit function (IAF) quality on earnings management. The country-level factors include (a) shareholder protection environment, (b) a country’s legal system and (c) economic status (developed and developing markets). Factors at the corporate-level include (i) assistance between internal and external auditors and (ii) outsourcing big data analytics.

Following the quantitative approach, the research data was retrieved from the Institute of Internal Auditors' Global Internal Audit Common Body of Knowledge (CBOK) 2015 database, where responses from 150 chief audit executives (CAEs) were extracted for investigation. This thesis implemented ordinary least square (OLS) regressions in two separate empirical studies to address its objectives in studying the moderating factors at both country and corporate levels. Separating the two levels empirically enabled reduced potential noise of interaction variables, leading to more robust statistical results. This multi‐level study is intended to deepen understanding of the complex set of moderating variables that affect the association between IAF quality and earnings management.

At the country-level, the results showed that the effects of IAF quality on reducing earnings management are higher for firms in countries with a lower shareholder protection environment or developing economy than their counterparts with a higher shareholder protection environment or developed economy. Further, this thesis found no significant evidence on whether the country’s legal system can moderate the relationship between IAF quality and earnings management. These findings indicate that the effectiveness of high IAF quality on deterring earnings management is not similar across nations. As a result, country-level factors should be considered by regulators, investors, and researchers in understanding the environmental work of the corporate governance that includes IAFs.

Furthermore, at the corporate-level, this study found the following. First, the effects of IAF quality on reducing earnings management are more significant for firms that spend a lower amount of time on assisting external auditors provided by internal auditors than firms that spend a higher amount of time on such assistance. This result is consistent with the notion that more direct assistance lowers the time IAFs can spend on higher-risk areas (e.g., detecting earnings management). Second, this study showed evidence that high IAF quality reduces earnings management, and this relationship is more pronounced for firms that outsource big data analytics for IAFs purposes than those that do not outsource. This study concluded that companies should consider the potential costs and benefits from outsourcing big data analytics and the extent of time spent to support the external audit.

Keywords: IAF quality; earnings management; shareholder protection environment; a country’s legal system; economic status; developed markets; developing markets; outsourcing big data analytics; assistance between internal and external auditors; CBOK 2015.

Item Type: Thesis (Doctoral)
Faculty \ School: Faculty of Social Sciences > Norwich Business School
Depositing User: Chris White
Date Deposited: 08 Jun 2022 08:38
Last Modified: 08 Jun 2022 08:38
URI: https://ueaeprints.uea.ac.uk/id/eprint/85461

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