Audit quality, IPOs and earnings management
: evidence from Saudi Arabia

  • Abdulaziz Sulaiman Alsultan

    Student thesis: Doctoral Thesis


    This research aims to examine earnings management practices in the Kingdom of Saudi Arabia. This research was conducted in response to the ban placed on Deloitte by the Capital Market Authority (CMA) from carrying out auditing work for listed firms in the Kingdom for two years, starting 1 June 2015. A large volume of published studies provide evidence that auditor size (Big 4) plays an essential role in constraining earnings management and providing high audit quality. However, banning one of the Big 4 raises a question about the role of these auditors in constraining engagement in earnings management in Saudi Arabia. It also raises a question of whether Deloitte’s clients managed earnings compared with companies audited by the rest of the Big 4 accounting firms. This research uses a sample of 85 non-financial firms for the period from 2004 to2014. This research finds that the Big 4 firms have a role in curbing earnings manage mentonly in income-decreasing activities. Moreover, this research finds that firms audited by Deloitte do not differ from those audited by the other Big 4 in terms of earnings management. CMA banned Deloitte from auditing any listed firms because of the collapse in 2012 of the Al-Mojil Group, which had gone public in 2008. Deloitte audited the pre-IPO year financial statements of Al-Mojil as well as the four years after the group went public, from 2008 to 2011. This dilemma raises doubts regarding the possibility of engagement in earnings management before going public and the audit quality in IPO firms in the Saudi context. Therefore, this research examines firms’ earnings management engagement before going public and audit quality in pre-IPO years. Based on a sample of 42 non-financial IPO firms for the period from 2005 to 2015, the findings of the current research confirm that the Saudi IPO firms did not engage in earnings management in the year before the IPO or the year of going public. Furthermore, the results of testing the role of the Big 4 in IPO firms show that the Big 4 firms are no deterrent to engagement in earnings management in pre-IPO years. This research finds that IPO firms audited by Deloitte did not engage in earnings management.
    Date of Award2017
    Original languageEnglish
    SupervisorKhaled Hussainey (Supervisor) & Shaling Li (Supervisor)

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