Examining Financial Reporting Quality: an Audit Quality Perspective

This study examines the relationship between audit quality and financial reporting quality of companies listed on the Australian Securities Exchange (ASX). The expectation is that audit quality and financial reporting quality are positively associated. The research focuses on three key audit quality measures such as audit fees, audit firm size and audit firm tenure. Financial reporting quality is measured using earnings management (i.e. discretionary accruals) and accounting conservatism (i.e. market-to-book ratio). These variables are measured using secondary data which were obtained from the financial reports of 58 sample companies listed on the ASX as at June 2024. Analyses are conducted to test hypotheses on the positive association between audit quality and financial reporting quality. The initial findings provide some support for the hypotheses, however, the regression results do not. This suggests that audit quality does not impact financial reporting quality for Australia's largest listed companies. Limitations such as small sample size, less or irrelevant variable selection and exclusion of financial institutions are discussed, and some recommendations for future research are provided