The Influence of Surplus Free Cash Flow and Audit Quality on Earnings Management

  • Tsania Rahmawati Universitas Diponegoro
Abstract views: 30 , pdf downloads: 27
Keywords: Surplus free cash flow, Audit quality, Earnings management.


The purpose of this research is to examine the effect of surplus free cash flow, audit quality, and the interaction between surplus free cash flow and audit on earnings management. This study uses secondary data in the form of annual reports and financial statements of manufacturing companies listed on the Indonesia Stock Exchange in 2015 and 2016. The sampling method used in this study was purposive sampling. The total research sample is 48 samples. The results showed that surplus free cash flow has a positive effect on earnings management, audit quality significantly influences earnings management, but the interaction between surplus free cash flow and audit quality has no impact on earnings management.


Alali, F.A. and Foote, P.S. (2012). The value relevance onf international financial reporting standards: empirical evidence in an emerging market. The International Journal of Accounting, Vol. 47 No. 1, pp. 85-108.
Bartov, E., Gul, F.A. and Tsui, J.S.L. (2001). Discretionary-accruals models and audit qualifications. Journal of Accounting and Economics, Vol. 30 No. 3, pp. 421-452.
Becker, C.L.,DeFond, M.L.,Jiambalvo, J. and Subramanyam, K.R.(1998). The effect of audit quality on earnings management. Contemporary Accounting Research, Vol. 15 No. 1, pp. 1-24.
Bliss, M.A., Gul, F.A. and Majid, A. (2011). Do political connections affect the role of independent audit committees and CEO duality? Some evidence from Malaysian audit pricing. Journal of Contemporary Accounting & Economics, Vol. 7 No. 2, pp. 82-98.
Bukit, R. B., & Iskandar, T. M. (2009). Surplus Free Cash Flow, Earnings Management and Audit Committee. Int. Journal of Economics and Management. pp. 204-223.
Chung, R., Firth, M., & Kim, J.-B. (2005). Earnings management, surplus free cash flow, and external monitoring. Journal of Business Research ,Vol.58, pp. 766-776.
De Angelo, L. E. (1981). Auditor Size and Audit Quality. Journal of Accounting and Economics,Vol.3, pp. 183-199.
De Fond, M., & Jiambalvo, J. (1994). Debt Covenant Violation and Manipulation of Accruals. Journal of Accounting and Economics, Vol.17, pp.145-176.
Ferreira, M.A. and Vilela, A.S. (2004). Why do firms hold cash? Evidence from EMU countries, European Financial Management, Vol. 10 No. 2, pp. 295-319.
Frankel, R.M., Johnson, M.F. and Nelson, M.W. (2002). The relation between auditors’ fees for non-audit services and earnings management. The Accounting Review, Vol. 77, pp. 71-105.
Ghozali, I. (2013). Aplikasi Analisis Multivariate dengan Progam IBM SPSS 20. Semarang: Badan Penerbit Universitas Diponegoro.
Heninger, W.G. (2001). The association between auditor litigation and abnormal accruals. The Accounting Review, Vol. 76 No. 1, pp. 111-126.
Jensen, M. C. (1986). Agency Cost of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review , Vol.76, pp. 323-329.
Jensen, M., & Meckling, W. (1976). Theory of the firm: managerial behavior, agency and ownership structure. Journal of Financial Economics , Vol.3 No.4, pp. 305-360.
Lin, J.W. and Hwang, M.I. (2010). Audit quality, corporate governance, and earnings management: a meta-analysis. International Journal of Auditing, Vol. 14 No. 1, pp. 57-77.
Luhgiatno. (2010). Analisis Pengaruh Kualitas Audit Terhadap Manajemen Laba (Studi Pada Perusahaan Yang Melakukan IPO di Indonesia). Fokus Ekonomi, Vol.5 No.2.
Matoussi, H. and Jardak, M.K. (2012). International corporate governance and finance: legal, cultural and political explanations. The International Journal of Accounting, Vol. 47 No. 1, pp. 1-43.
Mayhew, B.W. and Wilkins, M.S. (2003). Audit firm industry specialization as a differentiation strategy: evidence from fees charged to firms going public. Auditing: A Journal of Practice & Theory, Vol. 22 No. 2, pp. 33-52.
Rusmin, Emita, & Bambang. (2014). The Impact of Surplus Free Cash Flow and Audit Quality on Earnings Management. Asian Review of Accounting , pp. 217-232.
Watts, R. L., & Zimmerman, J. L. (1986). Positive Accounting Theory. New Jersey: Prentice Hall, Inc.
How to Cite
Tsania Rahmawati. (2020). The Influence of Surplus Free Cash Flow and Audit Quality on Earnings Management. JAE (JURNAL AKUNTANSI DAN EKONOMI), 5(2), 71-81.
Volume 5 No 2 Tahun 2020