The impact of audit quality on real earnings management in the UK context

Purpose The purpose of this paper is to examine whether audit quality influence real earnings management activities using a sample UK listed firms that have strong incentives manage upward through meeting past year’s as benchmark in the post-adoption period International Financial Reporting Standards (IFRS). Design/methodology/approach authors use 4,774 firm-year observations during 2005–2018. Univariate and multivariate analyses been conducted test association after controlling for firm characteristics institutional variables. Findings study reports presence Big 4 auditors significantly positively related with greater levels sales discretionary expenses manipulation. Though do not find any conclusive evidence on production costs manipulation, aggregated measure shows significant positive auditors. Practical implications implies managers who around take advantage accounting flexibility defining policies while reducing information asymmetry among investors signal better future performance. approach detect manipulation described auditing standards fails limit managerial due limited scope unclear guidance. Thus, impact public policies, results should, therefore, be interest regulators standard setters. Originality/value To best authors’ knowledge, first examines between all-purpose operational sampled data just meet post-IFRS period.