Auditor quality and real earning management of state-owned enterprises in Indonesia




auditor quality, real activity manipulation, abnormal CFO, abnormal DISC, abnormal PROD.


Purpose. The study aims to examine the effect of auditor quality on real activity manipulation.

Result. The population is 20 state-owned enterprises (SOEs) listed on the Indonesia Stock Exchange for the period 2018–2020. Using the purposive sampling method, 57 observations for the specified period were obtained. Next, we used a linear regression model as the method. The results showed that auditor quality had no effect on real activity manipulation through abnormal Operating Cash Flow (CFO), abnormal Production Costs (PROD) and abnormal Discretionary Expenses (DISC). Auditor quality has no effect on real activity manipulation through abnormal CFO. This is because the auditor’s independence attitude decreases which causes management to manipulate real activities through abnormal CFO, namely by increasing the company’s sales value. Auditor quality has no effect on real activity manipulation through abnormal PROD. This is because a qualified auditor in the company is only a formality to provide assurance in the eyes of investors that the company is in good condition. So, management will manipulate real activities through abnormal PROD, namely increasing the company’s production. Auditor quality has no effect on real activity manipulation through abnormal DISC. This is because the client’s accounting flexibility from qualified auditors is hampered, where management will change earnings management by using real activity manipulation through abnormal DISC, namely reducing discretionary costs.

Scientific novelty. This research is based on the application of the already known methodology and design developed by Sanjaya, the difference is that in this study we used SOEs as the object. Moreover, we employed different period from prior study which are in the year of 2018 to 2020. Also, this study uses agency theory because this is based on information asymmetry between the principal and agent, which overall indicates a certain novelty of our work.

Practical value. The results of this study are useful for assessing the quality of auditors in increasing the credibility of financial statements to reduce risks that occur in financial statements such as real earnings management through abnormal CFO, abnormal PROD, and abnormal DISC. Prospects for its development are by expanding and adding objects and years, as well as used variables.


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How to Cite

Pratiwi, C. N., Burhanudin, B., Gozali, E. O. D., & Hamzah, R. S. (2022). Auditor quality and real earning management of state-owned enterprises in Indonesia. Journal of Innovations and Sustainability, 6(3), 02.



Economic sciences