Unveiling Earnings Management and Audit Adjustments in Corporate Acquisition Financing: Evidence from Indonesia
Authors
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Annisa Qurrota A'yun
Management, Vocational School, Universitas Diponegoro, Semarang, Indonesia
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Lamin Kaira
School of social sciences,Njala university Sierra Leone, 48E Adolphus Street Kissy Freetown, Sierra Leone
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Mohamed Kamara
Accounting, Faculty Of Economic, Xiamen University, 422 Siming S Rd, Siming District, Xiamen, China
DOI:
https://doi.org/10.69725/ami.v1i1.93
Keywords:
Audit Adjustments, Stock Finance Acquisitions, Difference in Differences, Financial ReportingAbstract
Purpose: This study investigates the effectiveness of audit adjustments in detecting and correcting earnings overstatements in the context of stock-financed acquisitions. Specifically, it examines whether auditors require more significant downward adjustments for stock-financed acquisitions compared to cash-financed ones and assesses the implications of these adjustments on financial reporting.
Methods: This study uses a quasi-experimental difference-in-differences design to compare earnings adjustments in stock-financed versus cash-financed acquisitions, analyzing Indonesian firms from 2018 to 2023.
Findings: Results reveal that auditors demand significant downward adjustments for stock-financed acquisitions, indicating a role in mitigating earnings overstatements. This contrasts with previous studies that show inconsistent findings on earnings management. The research also highlights an increase in qualified audit opinions and regulatory penalties for firms involved in stock-financed acquisitions.
Novelty: The study contributes new insights into the impact of audit practices on earnings management in the Indonesian context, emphasizing the role of auditors in addressing managerial incentives to inflate earnings prior to stock-financed acquisitions.
Implications: The findings underscore the importance of transparency and rigorous auditing standards in financial reporting, suggesting that auditors play a crucial role in maintaining the integrity of financial statements. The study also highlights the unique regulatory challenges in Indonesia, providing a basis for further research into audit practices in different institutional settings.
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