Purpose
– The purpose of this paper is to investigate the compliance of Saudi shareholding companies with the requirements of corporate governance issued by the Board of Capital Market Authority in the Kingdom and their impact on earnings management.
Design/methodology/approach
– A questionnaire was used to collect data about the compliance of the Saudi shareholding companies with corporate governance requirements and discretionary accruals (DAs) were calculated from the financial statements of these companies using the modified Jones model, then multiple regression was used to test the relationship between the variables.
Findings
– The results of the study revealed that there was no statistically significant linear dependence of the mean of DAs on corporate governance. Additionally, no statistically significant effect for internal audit, audit committee and board of directors on earnings management was detected. However, the results revealed that there was a slight negative effect for internal audit scope of work and independence and audit committee independence on DAs.
Research limitations implications
– This research paper is applied on Saudi Arabia, a Middle East country with specific characteristics, that is, a specific context, and, therefore, the results must be interpreted within this context
Practical implications
– Regulators of Saudi corporations may need to reassess the effectiveness of corporate governance requirements issued by the Capital Market Authority and the actual implementation of these requirements. Researchers also may need further investigation of this phenomenon within its context.
Social implications
– The results of the study are very important to the Saudi society because they put a big question mark on the relevance of corporate governance of the Saudi shareholding companies
Originality/value
– The paper provides new evidence about the effect of corporate governance mechanisms on earnings management in a Middle East environment, which may suggest that there is a need to expand this study using other methodologies to delve into the depths and understand this phenomenon within its context.
This paper provides an understanding of the nature and extent of the changes that took place within audit firms operating in Saudi Arabia following the implementation of quality review programmes for audit firms by the Saudi Organisation for Certified Public Accountants (SOCPA). Establishing this understanding was based upon the 'processual' theoretical models of 'first and second order' organisational change. The Habermasian 'three stage discursive processes' were used, as the methodological approach for this empirical research, to explore a case-study involving a variety of seven selected audit firms operating in Saudi Arabia. This paper concludes that the implementation of quality review programmes for audit firms by SOCPA has affected the core activities of the seven audit firms in question, generating 'second order', 'evolution' and 'colonisation' changes. It also concludes that although the consequences of the new imposed programmes have been welcomed by some individual professionals and firms, as well as representatives of other interest groups within the Saudi accountancy context, they were unwelcome to many others.
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