Profitability, Market Incentive and Audit Quality of Financial Misstatements: Evidence from Malaysian Public Listed Companies (PLCs)
Alfiatul Rohmah Mohamed Hussain1, Suhaily Hasnan2, Zuraidah Mohd Sanusi3
1Alfiatul Rohmah Mohamed Hussain, Faculty of Accountancy, Universiti Teknologi MARA, Malaysia
2Suhaily Hasnan*, Faculty of Accountancy, Universiti Teknologi MARA, Malaysia
3Zuraidah Mohd Sanusi, Accounting Research Institute, Universiti Teknologi MARA Malaysia.
Manuscript received on November 15, 2019. | Revised Manuscript received on November 23, 2019. | Manuscript published on November 30, 2019. | PP: 2260-2264 | Volume-8 Issue-4, November 2019. | Retrieval Number: D7143118419/2019©BEIESP | DOI: 10.35940/ijrte.D7143.118419
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© The Authors. Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Abstract: The purpose of this study is to examine whether there is mean difference in profitability (Profit), market incentive (EPrice) and audit quality (AudQ) variables between restatement and non-restatement firms in Malaysia. The sample comprises of 285 public listed companies on the Main Board of Bursa Malaysia for the years between 2005 and 2013. A descriptive statistics analysis is performed to differentiate the characteristics of restatement and non- restatement firms. The study finds significant difference between restatement and non-restatement firms in the profitability and market incentive variables. The results show that restatement firms reported higher profit than non- restatement firms in the year prior to the restatement year. And, restatement firms have higher earnings-to-price ratio (proxy for market incentive) relative to the non-restatement firms that are matched by total assets, but lower than non-restatement firms which not matched by total assets. This indicates that restatement firms are able to maintain high growth expectations embedded in the firm’s share price. The study finds no significant difference in audit quality between misstatement and non-misstatement firms. The comparable audit fees between restatement and non-restatement firms indicate that the external auditors of restatement firms failed to appropriately assess the audit risk of these firms.
Keywords: Profitability; Market Incentives; Audit Quality; Financial Misstatements; Financial Restatements.
Scope of the Article: Industrial, Financial and Scientific Applications of All Kind.