The Effect of Disclosure of Financial Report and Managerial Ability on Earnings Management with Audit Quality as a Moderating Variable

Abstract

This study aim to obtain empirical evidence about the effect of disclosure of financial report and managerial ability on earnings management with audit quality as a moderating variable. This research was conducted for the period of 2012 – 2016, with a sample of 375 observing companies. The measurement of disclosure of financial report can be proxied by a disclosure index consisting of 33 voluntary disclosure items. Managerial ability used measurement of Data Envelopment Analysis (DEA). Audit quality used measurement of perceptions of the quality of financial reports auditor by Big Four accounting firms or non-Big Four accounting firms. The last, earning management used Jones’s modefication measurement. The analysis used Moderated Regression Analysis (MRA). The test result shows that disclosure of financial report has an effect on earnings management, but had not significant effect to managerial ability. Futhermore, audit quality is moderated the effect of disclosure of financial report on earnings management, but is not able to moderate the relationship between managerial ability and earnings management.

Keywords: disclosure of financial report, managerial ability, audit quality, and earnings management.

DOI: 10.7176/RJFA/10-2-04