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Earnings management and audit quality: stakeholders' perceptions.

Barghathi, Yasser; Collison, David; Crawford, Louise


Yasser Barghathi

David Collison

Louise Crawford


This paper examines the perceptions of Libyan Commercial Banks’ (LCBs) stakeholders regarding the role of the external auditor in relation to earnings management (EM). A total of 28 semi-structured interviews were carried out with a range of LCB stakeholders comprising preparers of financial statements, users, regulators and academics. A questionnaire survey of stakeholders which yielded 102 Responses (response rate 53%) was also carried out. A variety of views were held which varied to some extent according to stakeholder group. A widely held perception amongst interviewees was that the auditor has the ability to detect EM practices but may not be able to prevent it. However questionnaire respondents were, in aggregate, more confident of the auditor’s ability to deter EM due to the influence of the audit report. The paper provides insights into stakeholders’ perceptions of the quality of bank audits. The findings are of particular relevance to regulators, and specifically, the Central Bank of Libya. Perceptions of audit quality raise questions about its guidance and regulations especially in connection with audit firm rotation. Perceptions of audit quality, and therefore, of the credibility of financial statements should be of interest to all stakeholders. The importance of the banking sector for society has been amply demonstrated in recent years. A well-functioning audit function is a key component of its regulation. To the best of our knowledge, this paper is the first to examine issues related to banks’ audit quality and audit firm rotation in Libya.


BARGHATHI, Y., COLLISON, D. and CRAWFORD, L. 2018. Earnings management and audit quality: stakeholders' perceptions. Journal of management and governance [online], 22(3), pages 629-659. Available from:

Journal Article Type Article
Acceptance Date Nov 21, 2017
Online Publication Date Nov 30, 2017
Publication Date Sep 30, 2018
Deposit Date Nov 23, 2017
Publicly Available Date Dec 1, 2018
Journal Journal of management and governance
Print ISSN 1385-3457
Electronic ISSN 1572-963X
Publisher Springer
Peer Reviewed Peer Reviewed
Volume 22
Issue 3
Pages 629-659
Keywords Audit quality; Stakeholders; Earnings management; Auditors
Public URL


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