The relationship between audit quality and earnings management using classification shifting of income statement items: A research on BIST manufacturing industry companies

The auditors will have little chance to spend time and effort to determine such kind of earnings management applications since net earnings does not change in classification shifting. So, it is important to make a research on earnings management relationship by way of the audit quality and classification shifting. The aim of this study is to make a research on the relationship between audit quality and earnings management by way of classification shifting of articles of income statement. With this aim in mind, it has been studied the relationship between audit quality and earnings management by way of shifting the operating expenses to discontinued operations and non-operating expenses. In this study, in which audit firm size is used as the measure of audit quality, the data set of the publicly-traded production firms in Borsa İstanbul between 2009-2017 have been analyzed by using least squares regression method. The findings have shown that the application possibility of classification shifting in the companies audited by big 4 audit firms is higher. As a result, this finding shows us the usage possibility of classification shifting is higher when the audit quality increases.