The relationship between audit quality and audit committee with earning management and cash flow management

The fundamental roles of independent audit and audit committee, as part of the corporate governance mechanisms, are to reduce information asymmetry between managers and shareholders. We expect that an effective control through these two corporate governance mechanisms be associated with lower levels of earnings management and cash flow management. The purpose of this research is to study the relationship between the quality of independent audit and audit committee with earnings management and cash flow management. In this research ranking of Iranian society of CPAs has been used as the criteria of audit quality; to measure earnings management and cash flow management, Dechow model (1995) and Roychowdhury model (2006) are used, respectively. The statistical population of the following study is the listed companies at Tehran Stock Exchange during the period 2009 to 2014. Due to the specified limitations, the research sample consists of 807 firm-year observations. The results indicate that companies which have been audited by large audit firms, have less earnings management. However, there is no evidence explaining the relationship between audit quality and cash flow management. Also, the results show that there is no significant relationship between audit committee and earnings management or cash flow management.