The Impact of the External Auditor’s Verification Responsibility and Skills on Detecting Earnings Management Practices: Perspectives of External Auditors in Audit Firms and Offices in Yemen

Abstract

This study aimed to examine the impact of the external auditor’s verification responsibility and skills on detecting earnings management practices from the perspective of external auditors at audit firms and offices in Yemen. To achieve this objective, a questionnaire was used as the data collection tool. A total of 287 questionnaires were distributed directly to a random sample of external auditors and their assistants in the capital city, Sana’a. Out of these, 278 responses were valid for statistical analysis. The results revealed a positive impact of both verification responsibility and verification skills of external auditors on detecting earnings management practices. Additionally, the findings indicated that the positive impact of verification responsibility stemmed primarily from legal responsibility, followed by professional responsibility, and then ethical responsibility. Regarding verification skills, the positive impact was attributed to continuous training. However, the results showed no statistically significant impact of exercising sufficient professional due care, as a dimension of verification skills, on detecting earnings management practices. Based on these findings, the study recommends reviewing flexible alternative accounting policies that allow for multiple options in accounting policies and estimates. It also emphasizes the importance of enhancing the academic and professional qualifications of external auditors and continuously improving their performance. Lastly, the study calls for collaborative efforts between professional organizations and relevant stakeholders to highlight the consequences of earnings management practices.